Private consumption contracts (most likely temporarily) due to Omicron

ISRAEL - In Brief 30 Jan 2022 by Jonathan Katz

Private consumption declines on Covid concernsIn Q421, Credit card purchases increased by 1.5% saar, slowing from 8.6% in Q321. A closer look points to a 2.3% m/m contraction in December with service purchases down 5.5%, clearly due to Omicron concerns.Initial data for January through 17.1 point to a 9% decline in credit purchases.Looking at credit card purchases in the past two years show that service consumption is up only 12% compared to a 24% growth in consumption of goods.Policy makers have decided to cancel some restrictions regarding self-quarantine and school closure, despite the fact that the number of seriously ill continues to rise, although still remains low compared to previous waves. Experts expect a downward trajectory in infections. This should support a rebound in consumption.Meanwhile, the Bank of Israel composite index declined by -0.05% in December due to the beginning of the Omicron wave. Hi tech service exports expanded rapidly by 23% saar in September-November, accelerating from 21% in the previous three months.This sector continues to support a steady current account surplus. This sector has also enjoyed large investments in 2021, which could suffer if market volatility continues.We have updated our annual inflation to 1.8% (from 1.7%) under the assumption that shekel appreciation this year will be less pronounced, assuming less favourable market conditions.FX: The shekel weakened against the dollar by 1.8% last week, on the back of equity market volatility. Inflation: We have updated our February CPI to 0.4% m/m due to a weaker shekel and a sharp increase in petrol prices by 5.3%.We have updated our annual inflation to 1.8% (from 1.7%) under th...

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