External fundamentals remain exceptionally strong for the shekel

ISRAEL - In Brief 10 Mar 2022 by Jonathan Katz

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The current account surplus in Q421 increased to 6.6bn USD up from 4.9bn in Q321. In all of 2021, the surplus reached 22.5bn (similar to 2020) or 4.7% of GDP. In Q421 the service account surplus continued to expand on strong hi-tech exports by 1.2bn while the trade deficit remained stable. Net FDI reached 6.1bn in Q421 and 19.9bn for all of 2021 (up from 17.9bn in 2020), representing 4.1% of GDP. Israel’s external fundamentals continue to support shekel appreciation. The modest shekel weakening so far this year was the result of declining equity markets which “force” Israeli institutions to purchase FX in order not to reduce their FX exposure; as well as the expectation that the hi-tech sector will find it more difficult to raise money from abroad. The long-term external position is a rather positive one for the shekel. The second estimate for GDP growth in Q421 was 17.6%, revised up from 16.6%. The main change was stronger private consumption growth of 20.2% saar (from 19.2%). Annual GDP growth for 2021 was revised to 8.2% from 8.1%. Consumer confidence in February remained stable and relatively low at -18 , most likely due to declining equity markets and higher inflation, offset by improving employment and opening up from Omicron restrictions.