Business sector expectations soften

ISRAEL - In Brief 07 Oct 2022 by Jonathan Katz
Business sector expectations soften The Business Sector Tendency Survey is the closest indicator Israel has to PMIs (especially for non-manufacturing). The present economic situation component remained steady and strong (net balance of 26.5 in September following 26.6 last month). We prefer to look at the expectation for expansion in activity in the next three months as a good leading indicator. This component declined to 3.13 from 8.28 last month. Granted, this is only one month and not yet a clear trend. The expectations for expansion were positive in retail and hotels, and export orders improved in manufacturing. Some softening was apparent in services and domestic manufacturing orders. On the other hand, expectations for export growth in hi-tech (information and communications) remained strong (although slightly less than last month) and expectations for employment in this sector actually improved. Inflation expectations from all firms declined slightly to 2.99% in the next 12 months, down from 3.14%. Implications: This softening in business expectations is not significant enough to really have an impact on monetary policy in the near future. We note that export growth momentum (hi tech especially, but defense as well) remains strong, residential construction investments are expanding and the Israeli consumer is in fairly good shape (unemployment for ages 25-64 at 3.1%), despite feeling the pinch from higher rates (higher debt servicing). The consumer debt level is at a relatively low 43.7% GDP. Nevertheless, softer growth going into 2023 as global demand weakens is likely to support more moderate rate hikes.

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