Slowing growth and political instability will likely delay fiscal consolidation

ISRAEL - In Brief 08 Mar 2020 by Jonathan Katz

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Recent economic data remain fairly positive, for now: The Business Sector Tendency Survey in February continues to point to expectations for expansion in most sectors, excluding incoming tourism. The Poalim consumer confidence index increased in February. Tax revenue growth in February point to steady PC demand. On the other hand, both incoming and outgoing tourism declined modestly in February. The CA surplus reached 3.5bn USD in Q419 up from 2.9bn in Q319. In 2019 the CA surplus reached 14.3bn or 3.8% GDP. Last week the shekel weakened by 3.0% against the Euro, and by 0.5% against the dollar. In the past two weeks, the shekel has weakened by 3.2% against the basketof currencies. This could be due in part to the sharp decline of global share prices which reduces sharply the FX exposure of major Israeli institutions who must therefore reduce FX hedging if they want to maintain a steady rate of FX exposure. Monetary policy: The MPC released a statement last Monday that they had considered some form of looser policy but at the moment growth remains steady and the impact from the virus minimal. The situation needs to "worsen significantly" for them to loosen before the planned rate decision on 6.4.20. We think there is a 60% probability of a rate cut in Q220, with global deceleration expected to be more pronounced. Politics: With the final count in, the right wing/religious block received 58 seats while the center/left/Arab parties received 55 and Lieberman 7. So, we still have a stalemate situation with Netanyahu unable to convince three "deserters" from the center to shift sides. Gantz is trying to gather Leitberman the Arab parties to pass legislation forbidding a cand...