Companies Survey,1st quarter, 2009

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The Economy and Economic Activity

Companies Survey,1st quarter, 2009


Reports from companies and businesses indicate that business activity continued to contract in the first quarter of 2009, and, according to the survey reports, it was the demand side in particular that constrained their activity. In the review quarter the net balance of overall activity in the business sector further decreased, to a level even lower than that recorded at the peak of the slowdown at the beginning of the decade (Figure 1). In this quarter, for the first time, the slowdown spilled over into hotels as well – the net balance of the industry is especially negative. In the other industries the net balances are also negative, similar to those of the previous quarter, and even greater than the previous quarter in some industries. The leading index of activity reflects expectations of a further decline in activity. Parallel to the continuing decline in activity, the expected level of inflation for the next 12 months further decreased, and is already close to the lower limit of the inflation target.

Manufacturing output continued to contract, similar to the contraction in the previous quarter, and is reflected in a fall in both domestic sales and in exports—a result of a worsening of the demand constraints in Israel and worldwide due to the global crisis. In commerce, a fall in sales was recorded, continuing the fall in the previous quarter. In business services, the companies reported a further fall in revenue, in the wake of the decrease in activity in Israel and abroad. The companies expect the fall in activity in this industry to continue. Hotels recorded a sharp downturn in activity, for the first time since the decline of 2006, in the wake of the decrease in internal tourism and especially the downturn in the development of inbound tourism. Transport and communications companies recorded a decrease in activity, particularly in communications, but also in transport in the wake of the decline in tourism. The decline in tourism intensified the severity of demand-side constraints in the industry, while the supply-side constraints are less burdensome than in the past. Construction has contracted, especially because of the increased severity of demand constraints, and a substantial decline in activity in the peripheral areas, alongside an increase in activity in the central area. Expectations for the next quarter are that the contraction in the industry will be halted. Companies' reports on employment indicated a decrease in the number of employees in all sectors. Average expectations of inflation for the next twelve months have decreased, and are approaching the lower limit of the price-stability target— 1.4 percent as opposed to 1.7 percent in the previous survey. The companies expect, on average that the NIS/$ exchange rate will be NIS 4.36 twelve months hence, as against NIS 4.14 in the previous survey.

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