GDP contraction in Q420 likely to be modest

ISRAEL - In Brief 31 Jan 2021 by Jonathan Katz

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Highlights:Economic indicators fairly positive in Q420, but slow in January Hi tech service exports (10% of GDP) increased by 19% in 2020. Despite the third closure, private consumption declined modestly in Q420 with credit card purchases down 1.5% q/q and chain store sales down 2.2%. January witnessed a sharp decline in consumption due to the tightening of the closure and mobility. Credit card purchases are down 9%. The BoI Composite Index of the economy increased by 0.52% m/m, but most sub-indicators reflect the previous month’s activity. Broad unemployment (including furloughs) declined to 12.9% in December from 14.3% in November. 2nd half of Dec reached 13.7%. Housing mortgages reached 8.3bn ILS in December, up 15% y/y. The IMF expects inflation to remain low in Israel The IMF sees growth of 4.1% this year and 5% in 2022. The current account surplus will remain strong above 3% thru 2025. Inflation will remain low at 0.5% in 2021 and 2022 and 0.8% in 2023-2025. The output gap will close only in 2025. The IMF praises Israel’s fiscal and monetary response to the crisis, but recommends the BoI ends FX intervention in the future. FX: The shekel weakened by only 0.2% against the basket last week. In the short run, Israel’s early massive vaccination is shekel positive. Nevertheless, we still expect the BoI FX intervention commitment of 30bn USD to weaken the shekel this year. Bonds: The MoF will continue issuing 3bn ILS per week in tradeable bonds (12bn in February) due to uncertainty regarding the deficit. Petrol prices increased by 3.8% today, we expect February CPI to be zero.Vaccinations continue to proceed rapidly: The number of infections has witnessed a modest decl...