GDP growth likely to reach nearly 7% this year

ISRAEL - In Brief 22 Aug 2021 by Jonathan Katz

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Highlights of weekly macro review:GDP growth surprises on the upside GDP growth reached 15.4% saar in Q2 (on strong PC growth) and Q1 growth was revised sharply upwards. GDP growth is 3.2% above pre-Covid level (in real terms). Assuming modest growth in 2H21, annual growth likely to reach 7%. This robust print supports less monetary accommodation. Job vacancies move higher as employment growth improves Job vacancies reached 134k in July, compared to 95k pre-Covid. The increase in July occurred despite strong employment growth and decline in broad unemployment to 7.6% in the 2nd half of July. Further improvement in the labor market could be delayed until the start of the school year (September). So far, wage pressure has been fairly modest, but much will depend on future labor participation improvement. Consumer confidence declined in the 2nd half of July on worries regarding a possible renewed lockdown. Monetary policy: We expect a rate hold decision today, with the Bank of Israel stressing both the rapid expansion of the economy (and positive GDP print), but expresses concern regarding renewed Covid infections. No change is expected for the forward guidance statement. There will be no press conference this time around. FX: Last week, the shekel weakened by 0.2% against the basket of currencies but is 0.8% stronger so far this month.The shekel tends to weaken modestly when global equity markets decline, as Israeli institutions purchase FX in order to prevent a decline in their FX exposure. Covid: Although the number of inflections remains high and the number of seriously ill continues to rise, the rate of increase has declined markedly. This has increased the likelihoo...