BankofisraellogoAs reported in the Invest In Israel Newsletter, Israel’s central bank has raised its economic forecast for 2010, citing an improved outlook for global growth and world trade.

The Bank of Israel now expects the economy to grow 3.5% this year, compared with its previous forecast last September of 2.5%. Earlier, Bank of America-Merrill Lynch and Bank Leumi, one of Israel’s largest banks, also raised Israel’s economic growth forecast for 2010 to 3.5%.

Based on data through November, Israel’s gross domestic product (GDP) in 2009 increased 0.5% from a year earlier, compared to an OECD average of negative 3.5%, the Central Bureau of Statistics said. In the third quarter, the economy expanded at an annualized rate of 3%, while from April to June it grew by 1.1%.

GDP growth per capita in Israel fell 1.3% in 2009 (compared with a 4% drop in OECD countries), while unemployment in Israel stood at 7.7% in 2009 (compared with an average of 8.2% in the OECD).

Israel’s budget deficit was 5.2% in 2009, and is expected to be 5.5% in 2010. Israel’s debt-to-GDP ratio increased by a very low 3%, ending the year at 78% as other countries struggled amid the international economic crisis.

For the most part, Israel weathered the world financial crisis thanks to, among other factors, a relatively conservative banking system that had little exposure to mortgage-backed assets or risky loans.

The Bank of Israel raised Israel’s key lending rate to 1% in late December, after having cut borrowing costs to a record low of 0.5% in early 2009. The Bank of Israel was among the first in the developed world to raise interest rates after the global economic crisis.

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