External fundamentals remain robust and shekel supportive

ISRAEL - In Brief 22 Dec 2024 by Jonathan Katz

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Geopolitics: Israel’s geopolitical situation has greatly improved, following the ceasefire in Lebanon (still holding), the end of the Assad regime (breaking the flow of armaments from Iran to Hezbollah), and the weakening of Iran in the region (having lost an important ally in Syria). Nevertheless, two ballistic missiles fired from Yemen last week cause some damage and slight casualties. Focus is on trying to reach a ceasefire in Gaza. Macro fundamentals remain shekel supportive The current account surprise improved in Q324 to 5.5bn USD and 25bn in the last four quarters, representing 4.8% of GDP Foreign direct investments remain robust as well in the last 2 quarters. The shekel weakened last week by 1.1% against the basket due declining global equity markets and possibility the escalation against Yemen. Economic indicators point to growth in Q424 Industrial exports have expanded in the past three months (high tech especially), with some decline in November. Imports are expanding rapidly (consumer and raw materials), a good co-incident and leader indicator. The manufacturing PMI rose by 4.1 points to 48.4, with domestic orders up sharply to 57.7. Residential investments were up in Q324, with starts up 20% q/q and completions up 7%. The level of completions (50k, annual) is far from demand estimated at 60-65k. The lack of Palestinian workers is still weighing on activity in the construction sector, but less than before. Labor participation increased in November pushing the unemployment rate slightly higher to 2.7% from 2.6%. This trend is likely to continue as government support for evacuees dissipate, pushing unemployment slightly higher and reducing wage pressure. Inf...