Weekly report, June 12, 2026: fiscal outlook improves; focus shifts to May CPI and emerging U.S.-Iran deal
This week's data continued to point to a resilient Israeli economy despite renewed geopolitical uncertainty. Consumer confidence returned to its pre-war level, supporting a gradual recovery in private consumption, while fiscal performance remained stronger than expected. Strong direct-tax revenues prompted the Ministry of Finance to raise its 2026 revenue forecast by NIS 7 billion, and we subsequently lowered our 2026 deficit forecast to 4.7% of GDP. At the same time, institutional investors continued to reduce their foreign-currency exposure, highlighting the structural forces supporting the shekel.
The Bank of Israel's May meeting minutes remained relatively hawkish, reflecting concerns about inflation risks. However, subsequent developments—including lower fuel prices, moderating wage pressures, and a stronger shekel—have shifted the balance toward additional monetary easing. We expect the May CPI to decline by 0.1%-0.2%, increasing the likelihood of a further rate cut at the Bank of Israel's July 6 policy meeting.
The main area of weakness remains the housing market, where transaction volumes are near multi-year lows and developers continue to face growing pressure on cash flows.
Political developments continued to point toward elections on October 20, as the coalition advanced the proposed Basic Law: Torah Study and other religion-related legislation as part of an emerging understanding with the ultra-Orthodox parties ahead of the expected election campaign.
Meanwhile, reports toward the end of the week suggested that an agreement between the United States and Iran is drawing closer. President Trump reportedly canceled planned military strikes against Iran's main oil-export terminal and stated that the parties were close to signing a memorandum of understanding that would open a 60-day negotiation period toward a broader agreement. Iranian officials also indicated that most outstanding issues had been resolved and described the agreement as being close to completion, although no final deal has yet been signed.
Important macro data next week:
Attention next week will focus primarily on the May CPI release scheduled for Monday. We expect the CPI to decline by 0.1%-0.2%, reflecting lower fuel prices, the lagged effects of the shekel's appreciation, and seasonal declines in airfares and recreation prices. If the CPI posts a negative reading, expectations for an additional Bank of Israel rate cut at the July 6 meeting are likely to strengthen further.
Also on Monday, the Bank of Israel will publish the Balance of Payments report for the first quarter. The data will provide important insight into the current-account and capital-account flows that contributed to the roughly 3% appreciation of the shekel during the quarter.
On Sunday, June 14, the Central Bureau of Statistics will publish housing-transactions data for April and foreign-trade statistics for May. On Monday, June 15, the CBS will also release job-vacancy data for May, providing an updated picture of labor-market conditions following the war with Iran.
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