Companies Survey, 1st quarter, 2010

Overview:

Reports from companies indicate that business activity continued to expand in the first quarter of 2010, maintaining the trend of the previous quarter. In this quarter the increase in the net balance of overall activity in the business sector even intensified (Figure 1), and the leading index expresses expectations of further expansion of activity in the next quarter. This situation resulted from an easing in the severity of demand constraints, and despite the weakness of exports. As in the past, employment responded with a delay to this expansion of activity, and the number of employees in the various industries grew moderately. Average inflation expectations for the next 12 months fall within the range defined as price stability.

In manufacturing the expansion of output continued, maintaining its increase in the previous quarter. The expansion was reflected in the growth of domestic sales and exports. The increase in activity encompassed the low-tech and the hi-tech industries. Orders for the next quarter indicate that the expansion of activity in the industry is expected to continue. Sales rose in commerce companies, a continuation of the gradual growth in their net balance during 2009. Companies in this industry expect this trend to continue in the next quarter. Business services companies reported a slight rise in revenue, similar to that in the previous quarter. In the next quarter, companies expect a more substantial expansion of domestic activity and of activity abroad. Hotels recorded a sharp increase in activity relative to the same quarter last year, thanks to the rise in domestic and overseas tourism. These are the first positive signs of activity to appear since the outbreak of the global crisis that dealt a severe blow to the industry toward the end of 2008. Transport and communications recorded a rise in activity, thanks to the growth in sales of services to the Israeli market. Orders for the next quarter have risen significantly. Activity in the construction industry expanded slightly, but some of the indices still attest to the weakness of the industry. Some expansion is expected in the industry for the next quarter. Average inflation expectations for the next 12 months have already dropped to within the range of price stability, 2.45 percent, as against more than 3 percent in the previous survey. Companies expect, on average, that the NIS/US$ exchange rate in 12 months time will be NIS 3.9 to the dollar, similar to the companies’ expectations in the previous quarter.

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