Israel contracts in 4th quarter

Bloomberg

The economy shrunk at a 0.5 percent annualized pace after growing a revised 0.9 percent in the previous three months, the Jerusalem-based Central Bureau of Statistics said on its Web site yesterday.

The Bank of Israel began lowering its benchmark lending rate in October to help bolster growth and was likely to cut it to a record 0.5 percent later yesterday, according to a survey of nine economists by Bloomberg. The bank on Feb. 19 said for the first time that Israel was in a recession.

Consumer sentiment

"Consumer sentiment has had a significant impact," Tevfik Aksoy, an Istanbul-based economist with Morgan Stanley, said before the release. "People have been more careful when it comes to spending even if they haven’t been hit hard. Export performance has been weak, and I think it will weaken further mostly due to lower demand in the U.S. and Europe."

Israel’s index of leading economic indicators fell a preliminary 1.2 percent in January, the biggest monthly drop in at least 34 years, signaling that the country is in a recession, the Bank of Israel said on Feb. 19. The economy, which grew at an average rate of 5 percent over the past five years, will probably stagnate or contract in 2009 as its two biggest exports markets, the U.S. and Europe, slide into recession.

While the International Monetary Fund is forecasting 0.5 percent growth this year, the Bank of Israel expects gross domestic product to shrink 0.2 percent. UBS forecasts a 0.8 percent contraction while Morgan Stanley and Merrill Lynch say growth will be flat. The economy contracted 0.8 percent in the third quarter of 2006 after the war in Lebanon.