CA surplus reaches 4.6% GDP in Q220

ISRAEL - In Brief 14 Sep 2020 by Jonathan Katz
Fundamentals continue to support a strong shekel The CA surplus in Q220 increased to 4.4bn USD from 3.5bn in Q120 and 4.0bn one year ago. This improvement was due to a decline in the trade deficit and an increase in the service surplus. During the Covid crisis, merchandise imports declined more rapidly than exports, while hi-tech service exports continue to expand rapidly. The CA surplus currently represents 4.6% GDP, a strong print supporting shekel appreciation. In addition, in Q220, FDI into Israel doubled to 10.8bn while outgoing FDI remained stable at 1.0bn: providing more support for the shekel. Unemployment declines, temporarily The broad measurement of unemployment declined to 11.2% in August from 11.9% in July. This includes the officially unemployed, those on furlough due to Covid and those who were laid off but did not actively seek employment. Although this is encouraging, we expect to see unemployment move back towards 14% temporarily due to the renewed 3-week lockdown commencing on Friday. Housing starts drop sharply Residential housing starts collapsed in Q220 due to the lockdown, declining by 29% q/q and by 27% y/y. We expect to see a rebound in Q320. On the other hand, residential completions actually increased by 10% y/y in Q220. Implications: Strong completions will increase the housing stock and therefore should support weak rental prices (and therefore low inflation). The sharp decline in housing starts should support higher housing purchase prices in 1.5-2 years’ time, unless we see a sharp upward correction in coming quarters. While demand for new homes remains strong Demand for housing remained strong in July with new home sales up 1.7% y/y. New...

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