Economic activity has declined by 31%

ISRAEL - In Brief 26 Apr 2020 by Jonathan Katz

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The Bank of Israel estimates that economic activity at present is 31% below the pre-Covid-19 level. The number of employed has contracted by 40%. This estimate of low level of activity was following a partial opening of the closure. The Bank of Israel is forecasting inflation of -0.5% in the next 4 quarters. This forecast does not include any impact from supply chain disruptions. The shekel appreciated sharply last week, 2.9% against the USD and 1.9% against the EUR. The MoF expects GDP to decline by 5.4% this year, with the fiscal deficit expected to reach 11% and the debt/GDP ratio 74.5% GDP. Moody's changed Israel's rating outlook to stable from positive (at A1) due to the worsening of the fiscal position, and increasingly polarization of the political landscape. Fitch maintained Israel's A+ rating with a stable outlook. Israel will join WGBI at the end of April, with a weight of 0.29%. In March, credit card purchases declined by 12.5% m/m. All sectors declined sharply except food purchases which increased by 12.5%. Monetary policy: The last rate decision to reduce rates from 0.25% to 0.1% was a 5-1 vote, with one MPC member voting to reduce rates to zero, stating that the sharp contraction in economic activity justifies lower rates. The Bank of Israel appears satisfied with current market conditions, and further monetary stimulus (including corporate bond purchases) appears unlikely unless we see a deterioration of conditions. Apparently, the MPC had hesitated (in early March) whether to declare a government bond purchase program of "up to 50bn ILS" or "committed to 50bn". The later was chosen, but without a clear timeframe. Politics: Israel finally has a unity gov...