Additional fiscal stimulus is positive, if implemented rapidly

ISRAEL - In Brief 12 Jul 2020 by Jonathan Katz

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Highlights of the Weekly Israel Macro Wrap up:Recent data suggests that economy recovery has stalled: Credit card purchases in the first week of July actually declined by 1.6% compared to the previous week, and are down 9.5% YTD. The Google Mobility Index points to stability in leisure/retail, 17% below pre-Covid, while mobility to work is down 18%. The Poalim and CBS consumer confidence indexes declined in June. Monetary policy:The MPC decided to maintain policy rates at 0.1% last Monday. The Bank of Israel has embarked on a corporate bond purchasing program of 15bn ILS, which includes bonds rated A- and above. In June, the BoI purchased government bonds totaling 4.2bn ILS and has purchased 23.4bn since March, out of a total framework of 50bn. This framework is likely to be enlarged and continued into 2021.BoI macro forecast: The GDP growth forecasts has been revised down sharply to -6% this year (from -4.5% in May) with unemployment expected to reach 9% in Q420. The BoI expects the fiscal deficit to reach 12% this year. FX:The BoI purchased 1.4bn USD in June in order to slow appreciation. Israel institutions were net sellers of 1.1bn USD in May, following net purchases of 1.1bn USD in April.Fiscal policy: The fiscal deficit reached 6.4% GDP in the last 12 months through June. The Ministry of Finance announced an addition fiscal support plan aimed mostly at small businesses which will receive a 7,500 ILS grant, and additional support if they suffered a 40% decline in revenues. Unemployment benefits will be extended through June 2021. The loan guarantee program will be doubled. The cost of these schemes was not specifically detailed. Bank of Israel economists see an ad...