The Economist Intelligence Unit (EIU), part of the organization that publishes British weekly "The Economist", released an optimistic forecast for Israel's economy. The EIU said that Israel would emerge from recession as early as 2004, due to the Knesset having passed the new economic austerity program, and the agreement between the Ministry of Finance and the Histadrut (General Federation of Labor in Israel) on the erosion in real wages.
According to the EIU, growth in Israel's GDP will reach 2.9% after three grueling years of recession. In 2003, only 0.8% positive growth is expected, similar to Ministry of Finance figures, after a 1% decline in GDP growth in both 2001 and 2002.
The EIU does not forecast a crisis in the balance of payments, in light of improved exports and the receipt of US loan guarantees. The balance of payments current deficit for 2003 will be only 1.3% of GDP. The current deficit is expected to be kept under control next year too.
The survey further said that economic recovery in the US and global markets would increase export profitability for Israel, despite claims that profitability would be damaged by revaluation in the shekel/dollar rate of exchange over the past six months.
The EIU believes that the Bank of Israel will continue gradual interest rate cuts, and that inflation for the coming year will be below 2%. The EIU further said that the Bank of Israel will continue monitoring developments in prices and financial markets closely, exercising a careful and conservative monetary policy.
The EIU expects that the government budget deficit will be 4.4% of GDP, a 1.4% deviation from the official target deficit. In other words, even if the emergency austerity plan is carried out in full, it will not be able to stave off a large budget deficit of NIS 22 billion or NIS 7 billion more than planned.
The EIU said that only in 2004 would the budget deficit contract to 3% of GDP, compared with the official target of 2-2.5% of GDP. The figure assumes a 3% increase in GDP, and improved tax revenues.
Published by Globes [online] - www.globes.co.il - on 15 June 2003