ECONOMIC SURVEY - 16-Jan-96

16 January 1996

(Communicated by GPO Economics Desk)

PEACE ECONOMY:

* DONOR COUNTRIES PLEDGE $1.2 BILLION TO PALESTINIAN AUTHORITY FOR 1996.
Following last week's meeting of the donor countries in Paris, it was decided that the donors would grant $1.2 billion to the Palestinian Authority for 1996. According to Finance Ministry Director-General David Brodet, the PA's budget for 1996 is $630 million based on growth of 5% in its GDP and an inflation rate of 6.3%. Of the $1.2 billion in pledges, $75 million will cover the PA's budget deficit, and $550 million is earmarked towards joint projects with the World Bank. The remainder of the funding is from pledges previously made by the donors. Revenue expected by the PA during 1996 will be $555 million, 70% of which will be from Israeli taxes on goods for the PA and from local taxation collection. Since the Paris Agreement (setting out economic relations between Israel and the PA), Israel has transferred $350 million to the PA, mostly returning taxes placed on goods that have gone to the PA.
Finance Ministry - Eli Yosef, 972-2-317201

* NEW TRANSFER POINT FOR PALESTINIAN AGRICULTURAL PRODUCE TO BE BUILT.
The Agriculture Ministry and the Palestinian Autonomy's body responsible for agricultural activities have agreed to establish a new transfer facility for agricultural produce from Gaza to Israel, the Agriculture Ministry reported. The new facility, which will join one presently existing in Karni, will be built by Palestinian investors, to be chosen by the PA, at Sufa, near Khan Yunis, close to the area where most of the strip's agriculture activity takes place. The new facility will eliminate the need for farmers to take their produce to Karni, and reduce traffic as well as the transfer time needed for the produce to reach Israel.
Agriculture Ministry - Ronny Hassid, 972-3-6971749

MACRO-ECONOMIC SECTOR:

* 8.1% INFLATION RATE FOR 1995, RISE OF 1.2% IN DECEMBER.
Israel's inflation rate for 1995 was 8.1%, following an increase of 1.2% in the CPI for December, the Central Bureau of Statistics reported. This is the lowest annual inflation rate in 26 years, the CBS announced. The 8.1% inflation rate fell within the Government's target of between 8-11% set at the end of 1994. A majority of the CPI's components rose during the month including fruits and vegetables (1.8%), food (0.5%), housing (2.9%), clothing and shoes (1.7%), furniture and furnishings (0.7%), and health costs (1.0%).
Central Bureau of Statistics - David Neumann, 972-2-6553400

* TRADE DEFICIT TO RISE 39% IN 1995.
Israel's trade deficit is expected to increase by 39% in 1995, following an increase of approximately 20% in imports, against an increase of only 11% in exports, according to preliminary statistics from the Central Bureau of Statistics. The trade deficit will be $10.2 billion, or $2.8 billion higher than 1994s trade deficit. The deficit's monthly growth rate in 1995 was approximately 3%. Total imports will be close to $28 billion, with approximately 25% of this being diamond, petroleum, ship, and plane imports. Total exports will reach approximately $17.9 billion, with 69% consisting of industrial exports.
Central Bureau of Statistics - David Neumann, 972-2-6553400

* ECONOMIC EXPANSION CONTINUES ACCORDING TO BANK OF ISRAEL SURVEY. Israel's economy continued to expand during the fourth quarter of 1
995, according to a survey of concerns from across the economic spectrum conducted by the Bank of Israel. Leading the expansion were the hotel, construction, and industrial sectors, while the communications and transportation sectors were stable. Large industrial concerns showed larger growth and reported this was primarily from an increase in exports since local sales were without change. The retail sector reported that its activities, as well as inventory and productivity, were stable during the quarter.
Bank of Israel - Ohad Bar-Efrat, 972-2-6712552

DEFENSE INDUSTRIES SECTOR:

* MCDONNELL DOUGLAS TO PURCHASE $750 MILLION WORTH OF GOODS AND SERVICES FROM ISRAELI INDUSTRIES IN BUY-BACK AGREEMENT FOR 25 F-15I PLANES IT IS SELLING TO ISRAEL.
Henry Stonecipher, President of the McDonnell Douglas, the American-based multinational aerospace company, visited Israel last week, and told Prime Minister Shimon Peres that his company planned to purchase $750 million worth of goods and services from Israeli suppliers as a result of Israel's decision to purchase 25 F-15I planes. He also said that Pratt & Whitney, suppliers of the engines for the jets, planned to purchase $250 million in buy-back agreements from Israeli suppliers as a result of the plane deal. Stonecipher also met with members of the defense establishment and with defense industry companies.
Defense Ministry - Dan Weinreich, 972-3-6975339

FOREIGN TRADE:

* ADVANCE IN CANADA-ISRAEL TRADE TREATY NEGOTIATIONS.
Israeli and Canadian negotiators agreed on a draft text for a free trade agreement between the two countries during negotiations which took place last week in Jerusalem. The agreement will cover all areas of trade including areas sensitive to Israel such as agriculture, food, and product rules of origin. The agreement is expected to complement the NAFTA agreement between Canada, the U.S., and Mexico without hurting Israel's abilities to export to North America. The treaty, expected to come into effect on 01.07.96, needs to be approved by the Trade Ministers of both countries and ratified by their respective Governments.
Industry and Trade Ministry - Ayal Fabian, 972-2-220389

ENERGY SECTOR: