Fiscal deficit pushes higher despite robust tax revenues

ISRAEL - In Brief 10 Mar 2024 by Jonathan Katz

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The fiscal deficit reaches 5.6% GDP LTM The fiscal cost of the war in the first two months reached 17.3bn ILS (0.9% GDP), including most civilian support due to the war. Total expenditures are up by 44% y/y in Jan-Feb. Tax revenues surprised on the upside, reflecting stability y/y in real terms. Assuming no escalation in the North and steady recovery, we are likely to witness a slight undershooting of the 6.6% GDP target. Fiscal financing: The MoF issued 8.0bn USD abroad at a high cost in a public offering divided into several durations (spread of 1.35% for 5 year, 1.45% for 10 year and 1.75% for 30 year above US). Nevertheless, this financing abroad will take some pressure off the domestic bond market, with issuance expected to continue at the present pace of 3.5-4bn ILS per week. Gradual economic recovery continues: The CBS Business Tendency Survey for February points to a gradual expansion, especially in retail trade, manufacturing, and services. Construction remains weak due to lack of laborers. Both export and domestic orders in manufacturing expanded, as did the expectations for export growth in the high-tech services. Consumer confidence remains subdued due to the ongoing war and lack of a cease-fire. The average wage of Israelis has declined to 5.9% y/y in January from 9.1% in December. Wages of non-Israelis has spiked due to the lack of workers which is expected to push housing prices up in the medium term. Q423 GDP growth was revised down to -20.7% saar from -19.4%. FX: The shekel weakened by 0.87% against the basket of currencies last week but is up 2.5% YTD. We have noted that macro fundamentals continue to support the shekel if the geopolitical risks dissi...