Companies Survey, 2nd quarter, 2008

28/07/2008
All Press Releases In Subject:
The Economy and Economic Activity

Companies Survey, 2nd quarter, 2008

Overview:

Reports from companies and businesses indicate a substantial slowdown in the rate of expansion ofbusiness activity in the second quarter of 2008. The slowdown in growth in this quarter encompassedmainly commerce, manufacturing and non-hi-tech services. Against this, activity in the hotel trade, transportation and communications, and hi-tech services continued to expand at a relatively high rate. The leading index of activity in the business sector does not forecast a slowdown, even though in construction and in manufacturing the probability of a slowdown in activity has increased considerably. Expectations of inflation in the coming 12 months have increased sharply and significantly overshoot the upper limit of the price-stability target. Manufacturing output continued the slowdown that began in the first quarter. The slowdown in manufacturing activity reflects a freeze in sales to the domestic market and a moderate growth in exports. Orders to both the domestic and the export markets for the next quarter show a continuing slowing trend in activity. In commerce, a fall in sales was recorded for the first time, but a substantial increase in sales is expected in the next quarter. Business services companies reported a continuation of moderate revenue increases, which reflect a moderate growth in sales of services in Israel and abroad. The companies expect a slowdown in the volume of orders in the next quarter. Hotels reported an upturn in activity relative to the same quarter last year, thanks to an increase in the volume of inbound tourism. Expectations are of continuing accelerated growth. On the other hand the decreasing trend in the number of bed-nights by Israelis continues. Transport and
communications companies reported a growth in activity in all area, except for decreases in maritime transportation. Orders for the next quarter suggest that activity will continue to move ahead. Construction activity continues to be characterized by slowdown for companies of all sizes, which also emerges from the lowered expectations for the next quarter. Reportage about the severity of constraints on construction activity indicates that supply constraints have grown as a result of increasing prices of inputs. Average inflation expectations for the next twelve months have increased sharply to 3.7 percent as against 2.69 percent in the previous survey, and with a pronounced increase in the proportion of companies that expect inflation to overshoot the target range—66 percent in the review quarter as against 30 percent in the previous quarter. The companies expect, on average, that the NIS/$ exchange rate will stand at NIS 3.79 twelve months hence as against NIS 3.93 in the previous survey. Companies, on average, expect the NIS to depreciate against the dollar in the coming quarter by 4.6%, and to stand at 3.5. The average exchange rate on the date of reportage in the survey was NIS 3.35.

Link to File