This document presents the forecast of macroeconomic developments compiled by the Bank of Israel Research Department in December 2012. The forecast was presented to the Monetary Committee on December 23, 2012 during its meeting prior to the decision on the Bank of Israel interest rate for January 2013. According to the staff forecast, the inflation rate over the next four quarters (ending in the fourth quarter of 2013) will be 1.8 percent. The Bank of Israel interest rate, which stood at 2 percent when the forecast was compiled, is expected to be reduced to 1.75 percent in the near future, and then to remain unchanged until, at least, the end of 2013. Gross domestic product (GDP) growth in 2012 is estimated at 3.3 percent. On the assumption that natural gas production from the "Tamar" drilling site will begin as planned during the second quarter of 2013, expected growth during 2013 is 3.8 percent. This reflects the Central Bureau of Statistics (CBS) decision regarding the methodology of recording natural gas production (and the replacement of fuel imports) in National Accounts data at fixed prices.  Based on this methodology, natural gas production contributes one percentage point to GDP growth for 2013.  Excluding the effect of the natural gas from the "Tamar" site, GDP in 2013 is expected to grow by 2.8 percent, compared with a forecast of 3 percent in the previous quarter.  Should there be a delay in the flow of natural gas, the growth forecast for 2013 will be revised downward, although there is not expected to be any effect on the levels of employment and unemployment.


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