Rapid vaccination will facilitate economic recovery

ISRAEL - In Brief 03 Jan 2021 by Jonathan Katz

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Israel has proceeded rapidly with vaccination with over 12% of the population already vaccinated, and half of those 60 or above. Although in the short run, higher infections are likely to lead to more limitations on activity, we expect a rapid recovery commencing in Q221. Our 2021 GDP growth forecast stands at 3.9% but 9% y/y in Q421. Unemployment is expected declined to 7%-8% in Q421. The fiscal deficit is expected to reach 8% GDP. Pressure for shekel will continue due to strong fundamentals. Inflation is expected to reach 0.5%, with higher commodity prices and rental prices. Economic indicators have yet to reflect the third closure Credit card purchases increased by 10.4% in November. Last week witnessed a decline in purchases with many shops closing. High-tech service exports (currently 10% of GDP) increased by 22.5% y/y in October. This sector actually expanded rapidly during the crisis. Consumer confidence in the 1st half of December remained stable (similar to 2nd half of November), while future expectations improved. Broad unemployment remained stable at 14.6% in the second half of November, but is likely to move higher by end-2020 to 16%-17% due to renewed limitations on commerce. FX: 2020 witnessed a 5.1%-shekel appreciation against the basket, following an appreciation of 8.1% in 2019. Fundamentals remain supportive. Covid-19 infections continue to accelerate: The number of infections has continued to move higher, averaging 6,000 per day. Israel has moved rapidly in vaccinations, due to the well-organized medical clinics and large shipments received from Pfizer and more expected from Moderna. Nevertheless, due to high infection rates, more limitations on acti...