Companies Survey, 2nd quarter, 2006

09/08/2006
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Companies Survey, 2nd quarter, 2006

Overview:

Reports from companies for the second quarter of 2006 indicate that the expansion in total economic activity, evident for three consecutive years, is continuing. The leading index of the business sector and expectations in most industries suggest that rapid growth will continue in the next quarter as well. Importantly, the survey reflects responses that were gathered from companies before the hostilities in the north began. In construction, transport, and communications, gentle growth is foreseen. The leading index in this survey expects total business-sector activity to continue rising in the third quarter. Increases in manufacturing output reflected growth in export sales as well as sales to the domestic market. Domestic and export orders for the next quarter also continued to increase. Companies in trading industries reported continued growth in sales and expectations of more of the same in the next quarter. Business services companies reported a continued rise in revenue, reflected in increased sales of services in Israel and abroad, and expectations of more moderate growth in the third quarter. Activity in the hotel industry continued to increase, as a downturn in the number of bed nights of Israelis was more than offset by a considerable upturn in the number of bed nights of inbound tourists. The industry expects further growth in the next quarter. Transport and communications activity increased modestly, on the heels of strong increases in the preceding quarter. The upturn in this quarter reflected a rise in sales of services to Israelis and nonresidents, and growth is expected to continue in the next quarter. Construction activity increased modestly, much as it did in the previous quarter.
Expectations for the third quarter are similar. Reports on the severity of constraints on the performance of activity show that compared with the previous quarter, demand-side constraints decreased in most industries, as against a mixed trend in supply-side constraints of the industries reviewed. Overall, supply-side constraints and demand-side constraints seemed equally severe in most industries. Average inflation expectations to twelve months ahead slipped to 2.6 percent during the quarter and the share of companies that expect inflation to exceed the target range fell from 26 percent in the first quarter to 22 percent in the second. Companies expect, on average, an exchange rate of NIS 4.69 to the dollar twelve months ahead after having expected NIS 4.83 in the previous quarterly survey.

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