In its update on emerging markets Merrill Lynch has cut its 2009 growth forecast for Israel from zero to - 0.7%. It kept, however, its 2010 growth forecast for Israel unchanged at 1.5% growth.
According to the new update Merrill Lynch forecasts weaker exports and a worldwide contraction in trading volume as the main reasons for the lower growth Merrill Lynch revised forecast follows UBS forecast, published last month, which lowered its 2009 growth forecast for Israel to minus 0.8%.
Merrill Lynch's analysts cite Israel's exposure to the growing global recession, with 70% of Israeli exports destined for the U.S. and Europe, hence Israel is not immune to the global recession. Since Israeli exports to the US accounting for almost 17% of Israeli GDP, GDP growth is likely to contract in 2009 with a modest recovery in the second half of the year. To counteract the deterioration in the growth outlook, the budget deficit will widen to 5% of GDP.
Merrill Lynch predicts that Israel's inflation will reach 1% in 2009 and with inflation no longer a concern, the Bank of Israel will remain firmly focused on growth. The Bank will then cut the interest rate further to 0.25%.