'Israel is on the right track'

Faced by increasing numbers of positive economic indicators, analysts are starting to agree that Israel's economy has bottomed out.

"We're on the right track. We may have even passed the turning point," said Ayelet Nir, chief economist of Tel Aviv brokerage IBI, yesterday.

A year ago a statement like that would have evoked a bitter snort. Yet less than a year after Lehman Bros. collapsed with a roar heard around the world, macro analysts are smiling anew. Gil Bufman, chief economist of Bank Leumi, concurs with Nir, and adds, "It seems we're making the turn earlier than other countries."

Michael Sarel, the alpha economist at Harel Insurance and Finance, thinks rock-bottom may prove to have been in the third quarter of 2008.

The Bank of Israel is also evincing cautious optimism. In its interest rate announcement yesterday, it wrote, "Indicators and data that became available during the last month support the assessment that the decline in real activity slowed or even halted in the second quarter."

A lot of positive indicators have piled up in recent weeks. Standard & Poor's maintained Israel's credit rating at A/Stable. The Bank of Israel's composite index of indicators rose by 0.2% in June, its first gain after 10 months in retreat. The steepest drop had been in January 2009, when the index, which tracks the state of the economy, fell by 1.7%.

In its quarterly Companies Review, covering 530 companies, the central bank expressed its sense that the pace of decline in business activity slowed in the second quarter compared with the preceding six months.

Bank Hapoalim's index of purchasing managers surged by 9.5% in June, rising to 52.1%. It was the first time in 14 months that the index had risen above 50%, the break-even point between economic contraction and expansion.

Import of goods increased by 3.7% in June, after a year of contraction.

Moving onto the real estate market, we find an increase of 2% to 5% in home prices around the country, compared with price levels six months ago, and a substantial increase in the number of transactions.

Consumer confidence seems to be waxing as well. On Sunday the Central Bureau of Statistics reported that credit card purchases by private consumers had increased by 9.5% from April to June, in annualized terms, after rising 7.3% in the preceding three months. A few days before, the bureau had announced that retail sales had jumped by 5.1% between April and June, in annualized terms.

A host of companies are returning from 4-day to 5-day weeks, including software company Amdocs, blades maker Iscar, Keter Plastics, high-tech company Numonyx and hotel firm Isrotel.

Of course, the biggest story was stocks. After a horrible time in 2008, when Israeli stocks lost 46% of their value, investors have sent the benchmark TA-25 index climbing 44% this year. The TA-100 index is up 55% this year, after losing 51% last year.

Bufman begs to note that the economy contracted by 3.7% in the first quarter of 2009, in annualized terms, and is expected to have contracted by 2% in the second quarter. But he expects an upswing in the second half of the year, with positive growth in the third quarter and almost 2% in the fourth.