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By Steven Scheer
JERUSALEM, Dec 31 (Reuters) - Israel's economy is set for a steep slowdown in 2009 due to the global downturn that only started to have an effect late in 2008.
The Bank of Israel forecasts a growth rate next year of 1.5 percent, although it has indicated that could be revised lower should the global economy grow slower than expected. Some economists see growth of below 1 percent.
"It's going to be pretty gloomy but it's not like the United States or Germany," said Jonathan Katz, an economist at HSBC. "It will be more slowdown than recession."
Government figures published on Wednesday showed that Israel's economy grew at a preliminary 4.1 percent in 2008 to a record 715.8 billion shekels ($188 billion), down from a 5.4 percent spurt in 2007 that culminated four years of growth of at least 5 percent.
For the first six months of the year, economists and policymakers were baffled at the resiliency of Israel's economy to the global economic and financial crisis since exports remained robust and consumers were spending. Growth in the first half was an annualised 4.9 percent.
But the crisis began to weigh on the economy in the second half of the year -- primarily the final three months -- and led to annualised growth of 1.8 percent from July through December.
"We didn't see any impact in 2007 and the first half of 2008 from the financial crisis but in the second half of 2008 we really felt an impact," Soli Peleg, the Central Bureau of Statistics' macroeconomic chief, told Reuters after a news conference.
Peleg said that in the past few months, there was a drop in demand for exports, companies began cutting back on investment and consumers started to curtail spending.
Israel depends heavily on bilateral trade, in which exports account for some 45 percent of its gross domestic product. After growth of 8.5 percent in 2007, exports grew just 3.6 percent this year. Some key segments like diamonds -- 25 percent of total exports -- slid 24.5 percent this year while agriculture exports dropped 18 percent.
Imports grew by just 2.9 percent this year after an 11.7 percent jump in 2007, while consumer spending growth slowed to a 3.9 percent rate from 6.7 percent.
GOVERNMENT, CENTRAL BANK STEPS
Israel policymakers have tried to cushion the blow. The government has implemented a number of stimulus measures while the Bank of Israel has slashed short-term borrowing costs.
The central bank on Monday lowered its key lending rate by three-quarters of a point to a record low of 1.75 percent -- its fifth rate cut since October 7 in which rates have come down 2.5 percentage points.
"The effects of the global crisis on real economic activity in Israel are evident ... Following the slowdown in the growth rate in the third quarter, data relating to the fourth quarter indicate a standstill -- or even a reduction -- in economic activity," the Bank of Israel said on Monday.
Katz noted that exports in 2009 will be underpinned by
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It was also unlikely that Israel's economy will suffer damage from the current conflict in the Gaza Strip, Katz said.
Excluding the large public sector, the economy grew 4.5 percent in 2008 compared with 6.2 percent in 2007 Per capita gross domestic product edged up to $27,300.
Israel's population grew by 1.8 percent last year.
($1 = 3.80 shekels)