Recent Economic Developments, 112

Overview:

During the review period—the second half of 2005—the economy continued to grow rapidly, as it has in the past two years, with the expansion of trade, services, and tourism accelerating. The consolidation of growth in 2005 was manifested, among other things, in favorable trends in the labor market, stability in the financial markets, high yields, and a significant increase in trading volumes. The
unemployment rate declined to 8.9 percent, despite the increase in the number of foreign workers in the first three quarters of the year. An upturn in domestic demand and depreciation of the NIS led to a slight upturn in the pace of price increases and inflation expectations by the beginning of the review period. These developments, coupled with the narrowing of the NIS/dollar interest spread and the rapid growth of means of payment (the M1 aggregate), prompted the Bank of Israel to raise its key rate incrementally in Q4 after eight months of no change.

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