Only a month ago, the Bank of Israel wrote that the rise in the combined index for June reflected the rapid, continued expansion of Israeli economic activity; and only a month later the picture has reversed itself.

The combined index representing the state of the economy rose only 0.2 percent in July, according to the central bank. Professor Rafi Melnick's index for the economy also showed the same result for July.

The major factors leading to the small increase were the growth in industrial production and imports of goods. These rises were offset by drops in exports due to the war; along with drops in services and retail sales.

The index was the first released that related to a period including the recent war, which started July 12.

The war had a significant effect, in light of the rise of 0.7 percent the month before. The various components of the index showed a wide range of effects: Industrial production rose 2 percent after a 3.9 percent rise in May, though it must be noted that many of the July index's advance actually relate to June.

Exports of goods were down sharply by 11.9 percent in July, after rising 7.2 percent in June. Imports were up 1.9 percent in July after a 2.6 percent drop in June.

Industrial output up 7 percent in first half

The first half of 2006 showed 6.9 percent growth in industrial production, compared to the same period of 2005.

The number of salaried employees in industry during the period also rose 2.9 percent, with total hours worked growing by 3.3 percent.

Figures published yesterday by the Central Bureau of Statistics showed that industrial growth in the second quarter was even higher, reaching 11.7 percent on an annual basis. The same figure for 2005 was only 3.7 percent, and in 2004 7 percent. Industrial production actually dropped in 2001-2003.

D&B lowers forecast for economic growth

Dun and Bradstreet has lowered its growth forecast for the Israeli economy for 2006 as a result of the war in the North. The new forecast is for 3.8 percent growth - down from 4.5 percent.

However, Dun and Bradstreet did not change its rating for the Israeli economy.

Recently D&B Israel conducted a survey showing a drastic increase in the number of firms in danger of going out of business - up to 26 percent in August, from only 23 percent in July - before the war started.

D&B Israel expects a further deterioration in the number of firms in trouble, should the mechanism for compensating companies as a result of the war fails to speed up.

In particular, small and medium firms are at much greater risk, as are those in the North.

Sectors particularly hard hit were retailers in the North, but also many wholesalers whose customers could not conduct regular business during the war.

Also, the agriculture sector suffered disproportionately - 36 percent of firms are in danger of closing. The number for tourism is close behind at 35 percent.

Pubs and restaurants, traditionally problematic areas, are also in serious danger.