Robust GDP growth as well as declining unemployment

ISRAEL - In Brief 16 Aug 2021 by Jonathan Katz
Robust GDP growth as well as declining unemployment GDP growth in Q2 reached 15.4% saar (1st estimate), above consensus and our expectations. GDP growth in Q1 was revised upwards to -1.4% from -5.8%. In Q2, Private consumption growth reached 36.3% (due to the opening up of the economy), investments up 9.7%, and exports expanded by 18.1% while imports expanded by 15.8%. Our current estimate for 2021 growth is 6%, but this could be a bit conservative. In addition, broad unemployment declined sharply to 7.6% in the second half of July from 9.0% in the first half, suggesting that the cancellation of government supports brought unemployment back to the labor market. The return of workers to the labor market will slow wage pressure as well. These two robust prints will support less monetary accommodation by the Bank of Israel, including FX, and therefore supports indirectly shekel appreciation. The bond purchasing program will most likely not be extended as well. On the other hand, less bond issuance as the fiscal deficit contracts (due to strong tax revenues) will offset this impact.

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