Companies Survey, 4th quarter, 2007


Reports from companies for the fourth quarter of 2007 indicate that economic activity continued to advance briskly. All industries reported increases during the review quarter and the leading index suggests that the next quarter will offer more of the same. Demand constraints continued to decline in some industries became less severe than supply constraints in a few industries. The resulting picture, coupled with the second consecutive quarter of relatively high inflation expectations, gives evidence of the high level of economic activity and the approach of full use of production capacity. Manufacturing output continue to expand steeply although a little more slowly than in the previous quarter. The upturn in activity is reflected mainly in growth in export sales and a gentler upturn in sales to the domestic market. Orders for the next quarter, for the domestic market and even more so for export, also continued rising. In commerce, sales continued to trend upward and companies expect more of the same in the next quarter. Business services companies reported revenue increases that were powered by upturns in domestic and export sales; they expect a further increase in orders for the next quarter. Hotels reported stronger activity than in the year-earlier quarter and expect further growth in the next quarter, as evidenced by low level of constraints on inbound tourism and a continued upturn in reservations. Transport and communications companies reported continued growth in activity in all subindustries other than air transport; orders for the next quarter suggest that activity will continue to move ahead. Construction activity expanded as infrastructure and building construction accelerated, mainly among medium-sized companies. Further activity growth is expected in the next quarter.
Reportage about the severity of constraints on construction activity indicates that supply constraints, reflected mainly in shortages of skilled workers and financing difficulties, are dominant. Average inflation expectations to twelve months ahead rose slightly in this quarter, to 2.77 percent as against 2.67 percent in the previous survey, with a slight increase in the proportion of companies that expect inflation to overshoot the target range—25 percent in the review quarter as against 23 percent in the previous quarter. The companies expect the NIS/$ exchange rate to stand at NIS 4.18 twelve months ahead as against NIS 4.31 in the previous survey. Importantly, the average exchange rate on the date of reportage in the survey was NIS 3.97.

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