Gloom over steep fall in exports

Analysts have lowered their 2012 growth forecasts in light of the latest export figures.

The grim export figures published by the Central Bureau of Statistics on Thursday have brought fresh pessimism among leading capital market analysts, who predict that they portend further slowdown in economic activity.

"We're talking about an extraordinary drop of 12.6% in industrial exports in June, compared with May. Even though these are figures for only one month, a review of the year as a whole shows a clear downward trend, albeit more moderate. This is very worrying. The explanation is known: weakness in global demand," Leader Capital Markets chief economist Yonatan Katz told "Globes".

"In view of this extraordinary and worrying figure, I believe that growth in this quarter will be 2.5% or less, not the 3% predicted by the Bank of Israel. The decline in imports of durable goods also points to pessimism among households, which have stopped buying anything but necessities," Katz adds. "For the first time in a year, we will see the Bank of Israel's Composite State of the Economy Index, which will be published in a few days, fall by 0.1%. The export figures, combined with the low inflation will result in another interest rate cut, if not at the end of this month, then at the end of next month. The Bank of Israel will also soon revise its growth forecast downward from 3.4% to 3%."

Psagot Investment House Ltd. macroeconomic department head Uri Greenfeld says, "Despite the drop in industrial exports in recent months, we won't see a drop in exports for the year as a whole because the new Intel fab will come on line, which will partly balance things. Obviously, when big customers - the US, Europe, and China - have economic problems, our exports are hit, and will continue to be hit."

Greenfeld adds, "Later this year, we'll see a slowdown in growth, which will fall to 2.5-3% in 2012. I believe that it will be closer to 2.5%."

Greenfeld says, "The unemployment rate is rising, and will continue to rise, which reduces inflationary pressures. But they still exist, like rent, which current accounts for a quarter of the CPI and will probably continue to rise. Electricity, arnona (local property tax), water, and food will also go up. Our 12-month inflation forecast is 2.4%. This means that the real interest rate will continue to be negative. The Bank of Israel sees this, and if we add the burgeoning deficit, it will be hard for the Bank of Israel to continue cutting the interest rate. Moreover, the Bank of Israel will be in a hurry to dump its monetary ammunition, because it is very scared about developments in Europe."

Israel Export and International Cooperation Institute chairman Ramzi Gabbay says, "The figures are very worrying, and demonstrate that the global economic slowdown and contraction in global trade are strongly affecting Israeli exports. The data indicate the urgent need to allocate meaningful resources to help marketing by Israeli exporters."

The Ministry of Industry, Trade and Labor recently launched a NIS 35 million fund to help exporters find new markets and gain a foothold in them. Gabbay says that the new data indicate that this is not enough and that it should immediately be increased to NIS 200 million to be effective for exporters.

Despite the data, the Export Institute has not yet revised its forecast, and still talks about stagnation. However, it intends to review its forecast over the next couple of months, based on export figures for June and July.

Published by Globes [online], Israel business news - - on July 15, 2012

© Copyright of Globes Publisher Itonut (1983) Ltd. 2012

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