Steady economic growth and a weaker shekel will support tightening

ISRAEL - In Brief 30 Jun 2023 by Jonathan Katz
Recent economic news has been on the positive side. Credit card purchases (in real terms, sa) increased by 1.2% in May following 0.2% in April (revised up from zero). Trend data points to growth of 1.1% saar in March-May following growth of 0.7% in the previous three months. Private consumption is being fueled by fairly strong employment growth (12k in May and 100k YTD) as higher labor participation is being met by strong employment growth. Unemployment remained steady at 3.6% in May. In addition, the one-off 6,000 ILS wage bonus in the public sector has supported purchasing power. The Bank of Israel Composite Index of the economy increased by 0.25% in May, representing annual growth of close to 3%. With GDP growth in Q123 revised to 3.1% (from 2.5%) and growth appearing steady in Q223 (industrial exports expanded rapidly in April-May), GDP growth in 2023 is likely to reach 3% this year, higher than the current consensus (and BoI) expectation for 2.5%. Steady economic growth is supportive of further monetary tightening on July 10th, especially with the shekel weakening recently. The BoI places significant weight on the shekel in their monetary considerations. At the moment, a rate hike of 0.25% to 5.0% on July 10th appears rather likely, unless the shekel changes direction next week. We are revising our inflation forecast upwards to 3.2% NTM (from 2.7%) The shekel weakened by 1.4% (against the basket) in the past week. The shekel hit 3.70/USD today, weakening from 3.55/USD in mid-June. This will immediately impact CPI items such as travel abroad. It is difficult to fully explain the recent decline of the shekel. Granted. the coalition is pursuing the judicial legislati...

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