Israel Business Forecast Report Q1 2015

Date: December 12, 2014
Pages: 44
US$ 1,195.00
Report type: Strategic Report
Delivery: E-mail Delivery (PDF), Download

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Core Views

Political risks remain elevated despite an Egypt-brokered truce between Israel and Islamist group Hamas on August 26, as highlighted by protracted violence since the ceasefire. Prime Minister Binyamin Netanyahu is also under increased pressure from within the country's governing coalition, and we cannot preclude the possibility of early elections. Moreover, risks of spillover effects from the civil war in neighbouring Syria remain high.

Major Forecast Changes

We have revised down our 2014 growth forecast to 1.6% from our previous projection of 2.4%, mainly a result of the seven-week conflict with Islamist group Hamas in the Gaza Strip in July and August. Risks to stability will persist as long as a political solution to the Palestinian issue is elusive, and risks of radicalisation in the West Bank will remain high over the coming quarters. We forecast real GDP growth of 3.1% in 2015, from our previous forecast of 3.3%.
Executive Summary
Core Views
Major Forecast Changes
Key Risks To Outlook


SWOT Analysis
BMI Political Risk Index
Domestic Politics
Third Intifada Unlikely, But Increase In Violence Ahead
The recent flare-up of violence in Jerusalem will not result in large-scale popular unrest or the resumption of conflict between Israel and Islamist group Hamas over the coming months.
  Table: Political Overview
Long-Term Political Outlook
Long-Lasting Peace With The Palestinians Unlikely
We do not expect a long-lasting peace agreement between Israel and the Palestinians to be reached over the coming decade. Israel will also continue to face external security threats from Hizbullah and Iran.


SWOT Analysis
BMI Economic Risk Index
Economic Activity
Economy To Recover In 2015
Accelerating exports and low base effects will lead to faster real GDP expansion in Israel in 2015, and the economy will continue to gather steam over the next five years. On the back of the recent conflict with Islamist group Hamas and prospects for protracted political violence, we have revised down our 2014 and 2015 growth forecasts.
  Table: Economic Activity
  Table: MENA – Operational Risk
Fiscal Policy
Government Deficit To Increase In 2015
We project Israel's fiscal deficit to come in at 3.8% of GDP in 2015 and 3.5% in 2016, higher than the government's target of 3.4% and 2.75%, respectively. The deficit will remain elevated over the next five years. That said, public debt will stay under control, shielding the country from risks of downgrades from credit agencies.
  Table: Fiscal Policy
Monetary Policy
Policy To Reverse In 2015
The Bank of Israel will cut interest rates by 10 basis points in Q414 and maintain ultra-low interest rates in H115. The bank will hike rates to 0.50% in H215, as a result of increasing domestic inflation and monetary tightening in the US.
Banking Sector
Stricter Regulatory Framework To Hinder 2015 Profitability
Profitability for Israeli commercial banks will be low in 2015 owing to a stricter regulatory framework. Asset growth will also be modest as central bank policies aimed at limiting mortgages compound lending growth.
  Table: Monetary Policy
Currency Forecast
ILS: Only Minimal Gains In 2015
We see the Israeli shekel remaining weak over the next few months, and forecast it to come in at ILS3.9500/ILS at the end of 2014. The domestic factors at play in the recent depreciatory trend will in our view moderate in 2015, and we believe the unit will not weaken much further. We see the shekel trading at ILS3.8500/ILS at the end of 2015.
  Table: Currency Forecast
  Table: Exchange Rate


The Israeli Economy To 2023
Encouraging Growth Prospects Over The Coming Decade
We forecast steady expansion for the Israeli economy over the coming decade, driven by elevated export and gross fixed capital formation growth. Political risks will remain significant, resulting in a persistently elevated risk premium for investors.
  Table: Long-Term Macroeconomic Forecasts


SWOT Analysis
Operational Risk Index
Operational Risk
  Table: Operational Risk
Transport Network
  Table: MENA Transport Network Risks
Economic Openness
  Table: MENA – Economic Openness Risk
  Table: Top Five Trade Partners Product Exports (USDmn)
  Table: Top Five Products Imported (USDmn)


Oil & Gas
  Table: Oil Production
  Table: Oil Production
  Table: Gas Production
  Table: Gas Production
  Table: Petrochemicals Sector, (‘000 tpa, unless otherwise stated)
Other Key Sectors
  Table: Pharma Sector Key Indicators
  Table: Telecoms Sector Key Indicators
  Table: Defence and Security Sector Key Indicators
  Table: Infrastructure Sector Key Indicators
  Table: Food and Drink Sector Key Indicators
  Table: Autos Sector Key Indicators
  Table: Freight Key Indicators


Global Outlook
Warning Signs Growing
  Table: Global Assumptions
  Table: Developed States, Real GDP GrowtH, %
  Table: Emerging Markets, Real GDP Growth, %
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