On Thursday, the Bank of Israel increased its 2011 GDP growth forecast to 5.2 percent from 4.5 percent and lowered its unemployment rate forecast to 5.8 percent – lowest ever

The Bank of Israel’s growth forecast is in fact lower than the OECD forecast – 5.4 percent – announced earlier in the week. They are also predicting 4.2 percent GDP growth in the coming year and no change in the impressive unemployment rate.

The bank issued a statement saying:

“The rapid growth of GDP and use of resources in the first quarter, and in particular the surge in exports and fixed investment, resulted in an upward revision of most items. Despite the rapid increase in exports, the surplus in the current account of the balance of payments is expected to be significantly smaller than in the previous forecast, because of a faster increase in imports and a more severe deterioration in the terms of trade. The quarterly rates of growth are expected to slow a little in the course of the year as the economy converges to a full employment situation.”

And as for 2012:

“Exports are expected to continue increasing, at a rate slightly below that of world trade, due to both external forces – the deterioration in the terms of trade – and the level of the real exchange rate. The steep increase in capital stock, the result of the expansion of investment in 2011; and the continued rise in the rate of participation in the labor force to 58%, are expected to contribute to a growth rate in 2012 in excess of the potential rate, despite the fact that the economy is in a full employment environment.”

The prediction is 4 percent growth in private consumption for both this year and next; export growth (excluding diamonds) of 6.3 percent this year and 6.2 percent in 2012, import growth (not including defense and diamonds) of 11.5 percent and 6.7 percent respectively, and investment in fixed assets growth of 15.4 percent and 6.8 percent.

The forecast is evidence of stability in Israel’s geopolitical situation and continued smooth riding – knock on wood – in the global economy with no serious fiscal crises developing.

Meanwhile, in IMD’s World Competitiveness Yearbook (WCY) in 2011, Israel is number one in the world in total expenditures of R&D as percentage of GDP, central bank policy, entrepreneurship and scientific research. Also, in 2011 Israel was ranked by IMD, the second in the world in access to venture capital and public expenditure for education.