Macro fundamentals remain shekel supportive

ISRAEL - Report 24 Jun 2019 by Jonathan Katz

Highlights:

Residential completions increased sharply (18% q/q) in Q1 2019.
- This is supportive of softer rental prices as inventory increases.
- Housing starts declined in Q1 2019 but an upward revision is likely.

Job vacancies have declined in recent months.
- This is more pronounced in construction, but remains high in services.
- Generally, weaker demand for new workers suggests slowing growth.

Macro fundamentals remain shekel supportive:
- The CA surplus remained strong in Q1 2019 (2.8% GDP) on strong service export growth (hi tech mostly).
- In addition, net FDI reached 2.1% of GDP in Q1 2019.
- With Israeli institutions net FX sellers so far this year, the shekel has appreciated by 4.7% YTD (against the basket).
- We are pricing in some shekel weakness by year-end due to a problematic political reality that is making fiscal consolidation problematic.

The PMI declined in May to 50.4, with both export and domestic orders contracting.
- Manufacturing in Israel is facing the brunt of the global slowdown.

Nevertheless, hi-tech manufacturing actually increased in February-April by 27.1% saar.
- Other sectors witnessed a contraction of 1.1%.

Revenues from the total economy (VAT derived) increased by 2.1% saar in February-April, slowing from 2.5% in the previous three months. We expect some deceleration into Q2 2019.

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