Economic recovery will support tapering of asset purchases

ISRAEL - In Brief 25 Apr 2021 by Jonathan Katz

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Highlights:Economic indicators continue to point to recovery In Q121 merchandise imports increased sharply, including consumer goods, raw materials and investment goods. This provides a good co-incident indicator as well as a leading indicator of economic growth. Industrial exports contracted in Q121, but this is limited to two volatile sectors: chemicals and transport equipment (mostly defense). The PMI reflects weak growth, declining by 0.8 points to 48.6. Consumer confidence has rebounded to above pre-Covid levels. Broad unemployment declined to 11.6% in the 2nd half of March. Monetary policy remains unchanged, with upbeat tone The forward guidance statement no longer includes the possibility of additional monetary tools. The BoI presented only one (optimistic) forecast, not two as in the past. The BoI expects GDP growth to reach 6.3% this year and 5.0% in 2022. Policy rates will remain at 0.1% through 2022, the zero-rate option gone. Inflation will reach 1.3% in 2021 and 1.2% 2022. The bond market: In the press conference, the Governor hinted that steady recovery will support bond purchase tapering. The MoF is planning on a bond issuance abroad, mostly likely Euro-linked. This will take some pressure off domestic issuance. We think the fiscal deficit this year will reach 6%-7%, bond issuance will moderate in 2H21. The economy continues to recover: Nearly all restrictions on activity have been lifted as 5.1ml Israelis are fully vaccinated (85% of all those above the age of 16). Few restrictions remain for those vaccinated. The number of new infections continues to decline as does the number of seriously ill. The next stage will be partially opening up incoming touri...