Domestic demand continues to increase, supportive of tax revenues

ISRAEL - In Brief 30 Jul 2024 by Jonathan Katz

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Domestic demand remains fairly robust Credit card purchases (SA, in real terms, domestic) increased by 0.9% m/m in June following an increase of 0.6% in May. Trend data points to slowing growth of 3.3% saar in Q2 following 8.6% in Q1, with consumption of services up and purchases of goods down. This deceleration is to be expected following the sharp rebound in Q1; and in light of more Israelis traveling abroad (shifting some consumption abroad as well, from domestic). The level of credit card purchases in June is 5% above that in Q323 (SA). Private consumption is being fueled by wage growth (tight labor market) and government transfers to evacuees and mobilized soldiers. Fairly strong domestic demand is inflationary as well. According to the BoI: "The Composite State of the Economy Index increased by 0.12 percent in June, indicating moderate expansion of economic activity, further to the improvement in May." We note that numbers for March-May were revised upwards. This "moderate expansion" theme supports monetary loosening, but only when the elevated level of geopolitical risks subside. Acceleration in activity in May In May, revenues in the various sectors increased by 1.7 percent (compared with April, seasonally adjusted), following a decline of 0.8 percent in April. The level of revenues in May 24 is still 1.0 below that of May 23. Trend data for March–May indicate an expansion of 4.3 percent (annualized), following an increase of 0.5 percent in the preceding three months. Revenues in the wholesale/retail trade sectors increased by 7.9 percent in March–May, accelerating from 4.2 percent in the previous three months. Industrial production rose 1.4% in May after expan...