Macro fundamentals remain shekel positive

ISRAEL - In Brief 14 Sep 2023 by Jonathan Katz
Macro fundamentals remain shekel positive The current account surplus declined slightly in Q2 to 4.2bn USD (sa) from 5.0bn in Q1, but more importantly, the goods/services account surplus increased slightly to 3.1bn from 3.0bn (excluding the primary income which has less of a direct impact on FX flows). In Q2, the trade deficit declined by 0.7bn USD while the service account surplus declined by 0.6bn. The current transfers from the US government (aid to Israel’s defense) declined by 0.7bn USD in Q2, but this will most likely be corrected in subsequent quarters. In the financial account, real investments in Israel rose slightly to 3.6bn in Q2 from 3.1bn in Q1, but this is still reflecting a 40% decline in 1H23 compared to 2022. Financial portfolio outflows by Israelis increased to 3.4bn USD in Q2 from 0.8bn in Q1, partially offset by foreign portfolio flows into Israel which increased to 1.3bn from 0.2bn. Israel’s external fundamentals remain strong so far this year, but less so than in 2022. At this pace, the CA surplus in 2023 will reach 18bn USD (3.7% GDP) compared to 20.6bn in 2022 and net FDI will reach 4.0bn compared to 12.8bn last year. This backdrop is still shekel positive, but since the beginning of the year the shekel has been more sensitive to the uncertainty regarding the implications of the judicial overhaul resulting in an increase in financial outflows by Israelis (and Israeli savings institutions).

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