Boston, MA -- (SBWIRE) -- 05/02/2014 -- Political risks remain elevated, despite a reduced likelihood of an attack on Iran and Syria. In particular, spillover effects from the civil war in neighbouring Syria remain high, and investor confidence may be tempered as a result.

We project real GDP growth in Israel to come in at 3.2% in 2014 and 3.5% in 2015, from estimated growth of 3.3% in 2013. Despite the beginning of natural gas production in the Tamar gas field in H113, the economy will remain in a soft patch, with fiscal austerity hitting consumer demand in 2014.

Major Forecast Changes

We project consumer price inflation (CPI) averaging 1.6% and 1.9% in 2014 and 2015 respectively, from 1.5% in 2013. Relatively modest inflationary pressure will allow the Bank of Israel (BoI) to keep interest rates low, which we forecast to come in at 0.50% at end-2014, from our previous forecast of 0.75%.

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Key Risks To Outlook

House prices in Israel have risen rapidly in recent years, raising concerns that a bubble has formed in the property market. However, an increase in supply, coupled with macroprudential measures on the part of the government designed to bring down prices, have seen the market cooling in the past quarters. As a result, a sharp drop in prices is unlikely at this stage.

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