Strong service exports are shekel supportive

ISRAEL - In Brief 29 Dec 2019 by Jonathan Katz

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Service exports expanded sharply in October by 4.4% m/m (15.3% y/y). Service exports are mostly hi-tech services (software, IT, cyber, etc.).This sector is less sensitive to the global manufacturing slowdown.Service exports are expected to expand by nearly 10% this year.Import prices of consumer goods are down 4% y/y through Q319, in shekel terms. We expect January's CPI to reach -0.3% m/m, impacted by seasonal factors. Import prices of food products are down by 7.3% y/y Nevertheless, global agricultural prices have increased in Q419.Electricity prices will decline by 4% on January 1st, contributing -0.1% to CPI. Monetary policy: We continue to expect rate stability on January 7th. The MPC is signaling that it prefers FX intervention to lower rates, with growth robust, labor market tight and global central banks ceasing to loosen. Last week, the shekel appreciated by 0.7% against the dollar and by 0.5% against the Euro. Politics: Israel will go to the polls (again) on March 2nd. Until a government is in place, fiscal policy will actually be more restrictive, as ministries will receive 1/12 of their 2019 budget on a monthly basis, with no increase allowed. A more restrictive fiscal policy will be a drag (modest) on growth in early 2020 (as noted by the BoI). We think that rating agencies will remain patient with Israel and not lower our rating or outlook but could issue a warning regarding political instability. Netanyahu will head the Likud party, after winning the party primaries. The government will discuss the possibility of long-term cease fire with Hamas. Important data this week: Today- Two important private consumption indicators will be published: Credit card p...