Israel Retail Report Q4 2012

The Israel Retail Report examines the long-term potential of the local consumer market, but flags shorttermconcerns about the impact on Israel’s economic outlook of a rapidly deflating housing market.The report examines how best to maximise returns in the Israeli retail market while minimisinginvestment risk, and also explores the impact of lacklustre external demand due to the slump in Europeand the US on the Israeli consumer and on the ability of producers and exporters to realise returns in theshort term.

The report also analyses the growth and risk management strategies being employed by the leadingplayers in the Israeli retail sector, as they seek to maximise the growth opportunities offered by the localmarket.

Israeli per capita consumer spending is forecast to increase by 26% to 2016, compared with a regionalgrowth average of only 2%. The country comes fifth out of eight in BMI’s Middle East and Africa RetailRisk/Reward Ratings, although it outperforms significantly for Risk.

Among all retail categories, over-the-counter (OTC) pharmaceuticals will be the outperformer through to2016 in growth terms, with sales forecast to increase by nearly 40% between 2012 and 2016, fromUS$0.44bn to US$0.61bn, with solid demand for patented medicines among the wealthier population.In the competitive arena, BMI sees upside potential in the regulatory changes that are driving markedOTC and non-patented market growth.

Over the last quarter, BMI has revised the following forecasts/views:

Lacklustre external demand is weighing on the Israeli economy, and weak data have led BMI torevise down its 2012 real GDP growth forecast from 3.2% to 2.8%. However, we hold to ourview that supportive fiscal and monetary policy and a still positive outlook for fixed capitalformation are likely see the economy avoiding a sharp deceleration this year. Our real GDPgrowth forecast for 2013 is 3.3%.

BMI expects consumer spending to hold up relatively well in the near term. After taking a hit inQ411 (with growth falling to 1.6% y-o-y, from an average of 4.9% in the previous threequarters), total household consumption growth bounced back to 4.2% y-o-y in Q112, accordingto preliminary government data. We forecast private consumption growth of 3.5% and 4.0% in2012 and 2013 respectively, compared with 3.7% last year.