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By Steven Scheer
JERUSALEM, Jan 11 (Reuters) - The Bank of Israel on Monday raised its economic growth estimate for Israel to 3.5 percent in 2010 from a previous forecast of 2.5 percent.
"The growth in gross domestic product is led by a rise in demand for exports as a result of the global recovery," the central bank said in a statement, noting that world trade is expected to grow 7 percent this year -- higher than a previous forecast of 4.4 percent.
"The main risk in the forecast is that of a slower recovery in the global economy than that on which the forecast is based," it added.
Israel's economy grew an estimated 0.5 percent in 2009.
Last week, Bank of Israel Governor Stanley Fischer said the central bank would soon raise its growth forecast for this year.
The Bank of Israel expects unemployment at a 7.1 percent rate this year, down from a prior estimate of 8.3 percent and an estimated 7.7 percent rate in 2009.
Exports excluding diamonds are forecast to grow 8.6 percent after an 11 percent drop in 2009, with consumer spending likely to rise 4.8 percent following a 1.1 percent gain last year, the Bank of Israel said.
Israel's current account surplus in its balance of payments is expected at $3.0 billion this year, down from a prior estimate of $4.9 billion and 2009's likely surplus of $7.2 billion, it said.
Excluding the public sector, the Bank of Israel predicts the economy to grow 4.1 percent this year, higher than a prior forecast of 2.8 percent.
"The macroeconomic forecast for 2010 has been revised upwards as a result of positive information regarding economic activity in the second half of 2009, both globally and in Israel, and in light of improved forecasts of global growth and world trade in 2010," the central bank said.
Despite the global downturn, Israel had a short-lived recession, posting economic contractions in the fourth quarter of 2008 and first quarter of 2009. The economy grew a surprising 1 percent in the second quarter, then an annualised 3 percent in the third quarter. Growth is expected at 4 percent in the fourth quarter.
Fischer has raised Israel's key short-term lending rate by 0.75 percentage point to 1.25 percent since last August, partly as a result of the faster than expected economic recovery. He was the first major central banker to raise rates following the global crisis.
(Editing by Stephen Nisbet)