Hi tech exports continue to support shekel appreciation

ISRAEL - In Brief 30 May 2021 by Jonathan Katz
Economic indicators continue to point to a strong recovery Hi-tech service exports increased by 28% saar in Q121. Credit card purchases increased by 18% from January to April. Initial data for May point to a modest contraction (sa). Consumer confidence remained elevated in the 1st half of May, slightly above pre-Covid levels. The BoI composite index has reflected acceleration in the past few months, with most components moving higher, including exports, IP, revenues, job vacancies and imports of consumer goods. Inflation: We have updated our inflation forecast for May to 0.5% m/m (above consensus of 0.4%) due to our expectation of a higher-than-usual seasonal spike in clothing prices, as summer fashion prices are compared to last year's depressed prices (Covid crisis). According to the BoI, the output gap reached -5.3% in 2020, from 0.3% in 2019. We do not expect the gap to close before the end-22, a factor supporting generally weak inflationary pressure in the medium term.FX: Strong hi-tech service exports will support the CA surplus, despite a higher trade deficit. In addition, 2021 has witnessed a surge of FDI. The bond market: The Ministry of Finance will issue 9bn ILS in domestic tradeable bonds in June, similar to the amount in May, but lower than the 11bn issued previously. Apparently, the MoF is not concerned about the fiscal impact of the recent hostilities in Gaza.Non-residents increased their share in government bonds to 11.2% in March from 10% in February and 5.2% in April 2020. Few restrictions remain: Israel is basically Covid-free and has opened up totally. Movie theaters have returned as well. Incoming tourism (from those countries permitted) remains a ...

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