Recent Economic Developments, 116

14/02/2007
All Press Releases In Subject:
The Economy and Economic Activity

Recent Economic Developments, 116

Overview:

Economic developments in the period reviewed––the second half of 2006––constituted in the main a continuation of the trends evident in the first half of the year. Although the fighting in the north that erupted at the beginning of the third quarter did affect real activity and act as a brake on a significant part of the positive developments that had taken place at the beginning of the year, its effect in most areas of economic activity was moderate and temporary. Thus, the Bank of Israel Research Department assesses the effect at only half a percent of GDP, and as early as the fourth quarter the rapid rate of growth seen in the first half of the year was renewed. As in the case of other exceptional events in 2006, so too in the period of the war in the north the stability of the financial markets was maintained, and after an initial fall in share prices and a weakening of the shekel against the dollar at the outbreak of the hostilities, share prices recovered and started rising again, and the shekel strengthened again against the dollar. On the nominal side, against the background of the considerable appreciation of the shekel and the drop in energy prices, inflation and inflation expectations declined in the period reviewed, reflected by undershooting the inflation target.

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