Disposable income increases by 2.3% in 2020

ISRAEL - In Brief 07 Feb 2021 by Jonathan Katz
Highlights: Disposable income increased in 2020 due to government support Total wages paid declined by 3.8%, but government support to the unemployed totaled 27bn ILS (through November). M1 increased by 32% in 2020 with less opportunity to consume. This pent-up demand is likely to support some inflationary pressure. The broad unemployment rate increased to 16.7% in the 1st half of January from 13.7% in the 2nd half of December, due to closure tightening. The BoI Company Survey points to an improvement in business expectations, although they remain low compared to pre-Covid. The CBS Business tendency survey in January points to increasing optimism in industry, construction retail (although orders are down due to the closure) and some services (except for service exports). The fiscal deficit reached 12.1% GDP in the last 12 months (from 11.7% in December), but tax revenues are surprisingly strong, increasing 5.6% y/y. FX: The shekel appreciated by 0.3% last week (against the basket). The BoI purchased 6.8bn USD in January (following 21bn in 2020). The shekel weakened by 2% against the basket in January. In the short run, Israel’s early massive vaccination is shekel positive. Nevertheless, we still expect the BoI FX intervention commitment of 30bn USD to weaken the shekel this year. The Bond Market: The BoI Financial Report presented an empirical analysis regarding the correlation between the change in government debt/GDP ratio and bond yields (during 2006-2018). Every 1% increase in the debt ratio increases yields by 3.8 basis points. With the debt expected to reach 82% this year, this could mean higher yields by 130 basis points, assuming BoI bond purchases cease. With ...

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