The CA surplus increases surprisingly

ISRAEL - In Brief 14 Jun 2021 by Jonathan Katz

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The CA surplus increased in Q121 to 5.85bn USD from 5.5bn in Q420 (sa) and 4.3bn one year ago. The increase of the trade deficit by 0.7bn USD was offset by a similar increase in the service account surplus while the secondary income (transfers) increased by 0.4bn. Many economists had expected a contraction in the CA surplus due to higher commodity prices (energy especially) and rebounding imports, but this was offset by robust hi-tech service exports.In addition, net FDI reached 6.3bn in Q121 (from 2.2bn in Q420). These are strong fundamentals supportive of shekel appreciation. Broad unemployment surprisingly increased to 9.9% in the second half of May from 9.6% in the first half. This could be due to the escalation of violence and should be temporary, especially with the new Minister of Finance keen on cancelling furlough supports and the economy opening up totally. New home sales surged in April, up 11% m/m and 35% y/y. This is due to cheap financing, the tax reduction on investors and the general wealth effect of higher financial assets. Housing prices are increasing as well, but for the moment this does not appear to really concern the BoI. Somewhat surprisingly, the last rate decision was still a 5-1 vote with one member still in favor of lower rates to zero stating: “He believed that in order to support the recovery, an interest rate lower than 0.1 percent is more appropriate due to the intensity of the crisis and the unusually intense impact on the employment level in the economy”.This is surprising in light of the sharp economic recovery. This does suggest a somewhat dovish slant of the MPC. We do not expect rates to increase for quite some time, even after the...