The trade deficit expands further in Q3
In Q318 the trade deficit increased by 26% q/q.
* Manufacturing exports declined by 3.0% q/q.
* Imports of consumer goods increased by 2.0%.
* Imports of raw materials increased by 2.1%.
* The trade deficit reached 7.7bn in Q318 following 6.1bn in Q2.
The CA surplus is expected to decline to 1.0% this year, and is less supportive of a strong shekel. Nevertheless, we note that FDI remains strong, therefore much will depend on financial flows.
Fiscal deficit was up in September on tax revenue postponement.
* September's fiscal deficit reached 8.4bn ILS and 3.3% GDP LTM.
* 6.1bn of tax revenues (VAT and income tax) were postponed to October, due to the holiday season in September.
* The MoF expects the fiscal deficit to reach 3.3% of GDP this year.
* The larger threat to credibility could be 2019, as an election year will make fiscal consolidation difficult, and weaker global growth is likely to slow tax revenue growth.
Recent PC indicators have been mixed:
* Chain store sales contracted by 0.8% saar in June-August.
* Debit card purchases are up 5.1% saar in June-Aug, following 4.5%, an indicator that private consumption remains steady and growing in the service sectors, less in merchandise.
* PC demand is expected to remain strong on employment growth (2.4% y/y), wages (4.6% y/y) and high consumer confidence.
Politics: Professor Amir Yaron will be the next Governor of the Bank of Israel. Yaron's background is less in monetary economics and more in asset prices and the real economy. With Flug gone, the MPC will have more of a hawkish bias. If Yaron concentrates on asset prices (and the risk premium) and growth, present near-zero rates are difficult to justify.
Important data this week: September’s CPI was released today, up 0.1% m/m, slightly above expectations. Tomorrow the third estimate for Q218 GDP growth will be released (no adjustment expected from the previous print of 1.8% saar), and on Thursday new home sales for August.
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