Companies Survey, 3rd quarter, 2008

15/12/2008
All Press Releases In Subject:
The Economy and Economic Activity

Companies Survey, 3rd quarter, 2008

Overview:

Reports from companies and businesses indicate that the slowdown of business-activity growth, first evidenced in data from the Companies Survey at the beginning of the year, became perceptible in the third quarter. Activity slowed further in this quarter, lowering the net balance of business-sector activity to a level at which one cannot draw any significant conclusion about where the economy is positioned in the business cycle (see Note 2 to Figure 1). Furthermore, for the first time since 2004, the leading index reflects expectations of an additional downturn. Amid the expectations of a slump in activity, the expected inflation rate for the next twelve months fell but continued to overshoot the upper bound of the price-stability range as defined. The slowdown of activity growth in the review quarter encompassed trade, manufacturing, and services. However, transport and communications activity continued to grow, and while the rate of increase in hotel activity slowed somewhat relative to the year-earlier quarter, the level of activity in this industry remained high.
In manufacturing, the slowdown in output that began in the first quarter of the year continued. The deceleration of manufacturing activity was more significant among small and medium companies than among large ones, possibly reflecting the onset of a trend of greater severity in these companies’ borrowing constraints. Notably, small companies usually encounter tougher borrowing constraints to begin with. Orders for the next quarter suggest that manufacturing activity is continuing to slow and its growth may stop altogether. In trade, sales were down for the second straight quarter and are expected to worsen considerably in the coming quarter. Business services companies reported a further decline in the growth rate of turnover on the heels of decelerations in the two previous quarters. Although they expect activity vis-à-vis abroad to recover slightly in the next quarter, overall they expect the slowing of sector activity to continue. Hotels reported an increase in activity relative to the year-earlier quarter but at a slower rate than in the previous quarter. The level of industry activity remains high due to an increase in inbound tourism, but the upward trend in reservations for the next quarter has stopped. Transport and communications activity grew but orders for the next quarter suggest that the growth rate will fall. Construction remains slack and expectations for the next quarter point to more of the same. Average inflation expectations for the coming twelve months declined slightly but continued to overshoot the upper bound of the pricestability range, at 3.5 percent as against 3.7 percent in the previous survey. The companies expect the average exchange rate twelve months ahead to be NIS 3.9 to the dollar as against NIS 3.8 in the previous survey.

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