After figures showing growth of only 0.3% in the second quarter were published on Sunday, the Bank of Israel today published data indicating a drop in inflation expectations - further evidence of an economic slowdown.
The inflation forecast for the coming year dropped to 0.7%, compared with 1.1% in June. Some sources predicted that the Bank of Israel would be unable to ignore the latest figures, and would further lower the interest rate, currently at an all-time low of 0.1%.
"The slowing of growth in the second quarter shows the economy's great dependence on private consumption, especially after an unsustainable growth rate over the past year, given global weakness and the strong shekel, which is hampering exports," said Poalim IBI Underwriting and Investments Ltd. (TASE:PIU) chief economist Rafi Gozlan. "A return to a more reasonable growth rate in private consumption is projected for the second half of the year, together with some recovery in exports, following a steep drop in the first half of the year. When the major contribution of inventory during the first half of the year is added to the picture, the logical conclusion is that 2.25-2.5% growth can be expected."
Gozlan expects an interest rate cut soon, saying, "Looking at the coming year, we cut our inflation forecast to 0%. The reason is that the drop in the inflationary expectations results from structural causes, backed by the global environment (low inflation sparked by a plunge in commodity prices) and the strong shekel.
"A Bank of Israel interest rate cut is coming, and will arrive when the Bank of Israel realizes that it pinned too much hope on the effect of the US interest rate hike on the shekel," Gozlan said.
Published by Globes [online], Israel business news - www.globes-online.com - on August 18, 2015
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