Israel’s exposure to Ukraine and Russia is minimal

ISRAEL - In Brief 06 Mar 2022 by Jonathan Katz

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The economic impact from the Ukraine crisis is relatively small Total exposure of exports (goods and services) to both Russia and the Ukraine is less than 2.5%. Israel’s defense industry is likely to benefit from increased spending from the EU, especially Germany. A wave of immigration (not clear the size yet) will support PC demand. The main downside will come from higher inflation eroding purchasing power.Wage growth is gradually picking up According to our estimate, wages are accelerating by a 4%-4.5% pace, mostly concentrated in the hi-tech and construction. Wage pressure is likely to accelerate as the labour market tightens. In recent months, the private sector is increasingly reporting a lack of available workers as a factor limiting expansion of activity.The CBS business sector survey in February points to stronger orders in manufacturing, and service, as well expectations of improving retail sales and hotel activity, most likely due to the fading of Omicron wave. February witnesses a pick-up in consumer demand Credit card purchases increased by 2.3% m/m and the mobility to the workplace increased sharply, as restrictions diminished. Consumer confidence (Poalim) declined fairly sharply likely due to declining equity markets and higher inflation fears.Inflation: We have revised our inflation forecast in coming months up sharply due to higher energy and food prices. Inflation y/y is expected to peak at 4% in May, supportive of monetary tightening. Policy rates: We expects 3-4 rate hikes in the NTM to 1.0%. The BoI will likely stress core inflation over headline inflation. Slowing inflation in 2023 will restrict further monetary tightening.FX: Israel will not be re...