The BoI expects growth of 6.3% this year, assuming rapid vaccination

ISRAEL - In Brief 10 Jan 2021 by Jonathan Katz

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HighlightsThe fiscal deficit reached 11.5% GDP in 2020, below expectations.A few months ago, the expectations were for 13%-14% GDP.We have been consistently more optimistic, stressing two drivers: the high-tech service sector and the upside from lack of travel abroad on private consumption. Tax revenues expanded rapidly in December.We currently expect the fiscal deficit to decline to 8% GDP in 2021.Economic indicators in Q420 are relatively positiveCredit card purchases in December declined by 5.3% (we estimate this reflects a more modest contraction of 3% when seasonally adjusted).The Google Mobility Index to the workplace declined only slightly since the third closure was imposed.The Poalim consumer confidence index increased by 1 point in December, with the future expectations index back to pre-Covid level.Broad unemployment (including furlough) declined to 12.7% in the 1st half of December from 14.6% in the 2nd half of November.The CBS tendency survey in December points to expectations of weaker domestic demand but fairly strong export growth in industry.The main BoI macro forecast sees growth of 6.3% this year, Assuming opening up of the economy by mid-year, this scenario sees a strong rebound, inflation of 0.6% a fiscal deficit of 8% and debt/GDP at 77%.Monetary aggregates have increased sharply, supportive of higher inflation following economic recovery (we expect inflation of 1.2% in 2022 following 0.5% in 2021).FX: 2021 commenced with further significant shekel appreciation of 1.1% against the Euro and 0.9% against the dollar.FX purchases by the BoI increased sharply in December to 4.4bn USD (following 1.9bn in November). Nevertheless, the shekel appreciated b...