GDP growth likely to reach 7% this year; CA surplus remains robust, housing supply remains depressed relative to demand

ISRAEL - In Brief 14 Sep 2021 by Jonathan Katz

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GDP growth in Q221 was revised to 16.6% (from 15.4%), as private consumption expanded by 39.2% (revised from 36.3%), investments expanded by 13.2% (from 9.7%) and exports by 19.8% (previously 18.1%). We expect GDP growth to reach 7% this year, fueled by strong hi-tech exports and strong private consumption (as Israelis are avoiding travel abroad and consuming more in Israel). This is positive for tax revenues, but also will support monetary tightening down the road (we think in Q322). The current account surplus in Q221 reached 6.5bn USD following 6.7bn in Q121 (revised up from 5.9bn). The trade deficit increased to 5.3bn (from 4.0bn in Q1) while the service account surplus improved to 10.4bn from 8.6bn. Net FDI reached 5bn USD (following 5.9bn in Q1). Strong hi-tech service export growth is offsetting (in part) strong merchandise imports. The CA surplus is expected to reach 6% GDP this year, with net FDI close to 5%. Strong macro fundamentals continue to support shekel appreciation. Residential housing starts in Q221 reached 52k (annual) following 50k in Q121. Completions reached 43k in Q221 following 46k in Q121. With the number of new households estimated at 55k per year, housing supply is still too low relative to demand. This is expected to fuel higher housing prices, both purchase prices and rental prices.