Underlying growth remains steady in Q2
Headline Q2 2019 GDP growth reached 1.0% saar following 4.7% in Q1 2019.
* Growth excluding import taxes reached 3.1%, following 3.2% in Q1 2019. This is more reflective of real activity, due to the higher taxes on new vehicles on April 1.
* Exports (excluding diamonds and start-ups) increased by 4.6%, and PC excluding durables increased by 7.2%, but investments were down 3.1%.
* We expect GDP growth to reach 3.1% this year, slowing to 2.8% in 2020.
July's CPI surprised on the downside (-0.3% m/m and 0.5% y/y).
* Fresh fruits declined sharply, following a similar trend in June.
* In addition, shekel appreciation had a stronger impact than expected.
* Core inflation moderated to 0.85% y/y from 1.1% in June.
We expect inflation to reach 1.1% NTM, 0.4% of which would be due to higher taxation in a likely fiscal consolidation scheme in early 2020.
Job vacancies/labor force ratio points to some softness in the labor market.
New home sales surged in July, and unsold inventory declined.
* These trends suggests that housing prices will continue to rise.
Despite recent talk of QE, we think steady GDP growth and rising housing prices make a rate cut and/or QE somewhat unlikely.
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