Economic growth remains robust into Q3

ISRAEL - In Brief 11 Sep 2022 by Jonathan Katz
The Business Sentiment Survey points to steady and strong growth.  The current conditions index increased by 1.2 points to a level above that of 2019.  The expectations for activity in the next three months pushed higher to a net balance of +8.3 points. The hi-tech sector remains optimistic regarding exports in the coming month, although employment growth appears to have slowed.  The lack of labor remains acute in most sectors, with some easing in services.  Inflation expectations in the next 12 months moved slightly higher to 3.14% from 3.08%.  This survey suggests growth in Q3 remains strong and likely to spillover to the 4th quarter as well.  For the BoI, this will support further steady and fairly aggressive tightening to 3.25%-3.5% by Q223. The CBS Consumer Confidence index increased slightly in August, by 4 points to -19 points, still a relatively low level compared to 2021 (-9 points) and pre-Covid 2019: -6 points. Apparently, inflation and asset wealth erosion are impacting consumer confidence. The fiscal numbers remain strong  Israel is running a fiscal surplus of 0.6% GDP in the LTM.  Tax revenues remain strong and expenditure growth modest.  This is supportive of low bond issuance and is good news for the long-end of the curve.  Despite additional spending on public sector wage agreements and slowing tax revenue growth, the fiscal posture is likely to remain strong in 2023 (although shifting from a surplus to a low deficit). FX: Last week, the shekel weakened by 1.2% against the dollar and by 2.3% against the Euro.  In Q222, Israeli savings institutions purchased 4.2bn USD following 12.4bn in Q1. The Israeli business sector and foreigners sold FX in 1H22. Im...

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