Boston, MA -- (SBWIRE) -- 10/31/2013 -- Political risks remain elevated, with potential for an US military attack on Syria increasing risks of spill over effects. Investors' risk appetite may be tempered as a result.

We project consumer price inflation (CPI) averaging 1.9% and 2.3% in 2013 and 2014, respectively, from 1.7% in 2012. Relatively modest inflationary pressure will allow the Bank of Israel (BoI) to keep interest rates low, which we forecast to come in at 1.00% at end-2013 and 0.75% at end-2014.

Major Forecast Changes

We project real GDP growth in Israel to come in at 3.5% in 2013 and 3.2% in 2014, respectively, down from our previous forecasts of 3.7% this year and 3.8% in the next. Despite the beginning of natural gas production in the Tamar gas field in H113, the economy will remain in a soft patch, with export growth remaining slack as a result of slow growth in key export markets, while fiscal austerity will hit consumer demand in H213 and 2014.

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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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