GDP contraction in Q2 likely to be moderate (relative to US and EU)

ISRAEL - In Brief 02 Aug 2020 by Jonathan Katz
Highlights of Weekly Israel Macro Wrap Up: Recent economic data point to steady economic activity in July: Credit card purchases increased by 4.9% in July (through 28.7). The Google Mobility Index points to some stability in the past 2 weeks. Production of electricity (adjusted), is up back to last year’s level. Unemployment increased modestly in the first two weeks of July to 12.3%, from 11.8% in the previous two weeks. We had expected higher. High-tech service exports increased by 10% m/m in May (23% y/y). On the other hand, the BoI Corporate Survey declined sharply in Q2. GDP growth: On August 16th, the CBS will publish the first estimate for Q220 GDP growth. We expect a “relatively” positive print of -18% saar. We note: High tech service exports (9% of GDP) are up 25% saar in April-May. The net trade balance is positive (net exports are up). Much residential construction continued during the lock down. Israel has a net negative tourist balance: In 2019 there were 9.2ml departures compared to 4.9ml entries into Israel. The lack of flights supports domestic consumption. The monetary base is up 14.7% y/y in June 20, and M1 is up 20%. This monetary expansion is modest compared to the US, but is expected to support higher inflation in the long run (when the output gap closes). The bond market: the MoF announced that domestic bond issues will slow in August to 10bn ILS from 11bn in July and 13bn in June. This could be due to summer seasonality, and the result of recent issues issuance abroad. The bond market will react this week to the fiscal numbers for July. Recent economic indicators suggest steady domestic demand which support tax revenues. Politics: Social unrest ha...

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