Financial outflows have had more of an impact than the CA surplus

ISRAEL - In Brief 22 Sep 2024 by Jonathan Katz

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Geopolitics: The past few days witnessed an escalation in the level of hostilities in the North, in retaliation for Israel’s air attack on top Hezbollah operatives in Beirut and the bipper attack (which Israel has yet to claim responsibility). Limitations were placed north of Haifa (including) regarding school and gatherings. Israel continues to strike Hezbollah missile sites and more missiles are being fired at Israel. It is not clear whether we will see a ground incursion into Lebanon. Housing completions plummeted Housing completions declined by 17% q/q in the second quarter to a low annual level of 45k units, way below the demand required from household growth, estimated at close to 65k. This supply issue (due mostly to the lack of Palestinian workers) will continue to put upward pressure on housing prices, including rentals measured in the CPI. Demand for workers declines, but so does supply Job vacancies declined by 2.3% m/m in August but the number of officially unemployed declined as well. The demand/supply ratio in the labor market remained stable at 1.01, a historically high level, supportive of wage pressure. Wages are up 7% y/y. The CA surplus remains strong, but financial outflows dominate The current account surplus reached 4.5% GDP in Q2, slightly down from 4.6% in Q1. FDI from foreigners rebounded to 5.8bn USD. Israelis increased their net purchases of financial assets abroad to 6.3bn and foreigners sold 0.8bn of Israeli financial assets. As long as hostilities continue, financial flows will most likely be more dominant on FX than the current account and real investments. FX: The shekel weakened further last week (by 1.9% against the basket of currencie...