Fundamentals will continue to support appreciation

ISRAEL - In Brief 14 Mar 2021 by Jonathan Katz

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Strong fundamentals support shekel appreciation In 2020, the CA surplus reached 5% GDP, and net FDI added an additional 4.9%. This is due to Israel’s vibrant hi-tech sector, boosting exports and investments. Some factors will reverse in 21: commodity prices are up (energy esp.), travel abroad will be resumed, and imports will increase post-Covid. We expect the CA surplus to reach 3.9% this year and FDI to continue. New home sales are up 12% y/y in January, as demand remains strong. Housing completions declined in 2020, supporting higher housing prices. Israeli institutions sold 2.9bn USD in January, in order to maintain steady FX exposure despite higher market valuations abroad. We continue to expect strong BoI intervention to maintain a fairly stable shekel this year. This policy will likely be reduced by end-year. Rates: The last rate hold decision was a 5 - 1 vote. We see rates remaining at 0.1% through 2022 at least. Low inflation will keep rates low even after the Fed starts tightening. Bonds: In January, foreign investors increased their exposure to Israeli bonds significantly, reaching 9.2% of all the domestic bond stock from 7.3% in December and 5.3% in April. Economic indicators point to a rapid recovery Consumer confidence in 2H-February is back to pre-Covid levels. Rapid opening up of the economy has pushed credit card purchases up by 8% in the last week (through 8.3) and by 20% since mid-February. Trade data point to strong import growth, both consumer and business. Manufacturing exports (excluding volatile chemicals) are up slightly. The economy has opened up significantly: Restaurants, all shops/malls as well as cultural activities, and weddings (with lim...