The CA surplus and FDI remain robust

ISRAEL - In Brief 13 Mar 2022 by Jonathan Katz
Highlights:1. The current account surplus and net FDI together totaled 8.8% GDP in 2021, underlying Israel’s strong fundamentals supportive of the shekel.2. The fiscal deficit declined to 2.2% GDP in the last 12 months, supportive of further reduction in bond issuance.3. We expect a CPI of 0.5% m/m in February, in line with consensus.The current account surplus reached 4.7% GDP in 2021 The CA surplus reached 22.5bn USD in 2021, following 22.3bn in 2020. Q421 witnessed a surplus of 6.6bn, up from 4.9bn in Q321 on strong hi-tech service exports. Net FDI reached 4.1% GDP in 2021, accelerating in Q421. Israel’s macro fundamentals remain strongly shekel supportive, although this year equity market volatility has reversed (temporarily) this long-term trend. Trade data point to declining exports while imports remain strong (an indicator of strong economic growth), resulting in a growing trade deficit in January-February. Although the CA surplus will likely decline somewhat this year on higher commodity prices and increasing travel abroad by Israelis, it will remain a factor supporting shekel appreciation.Fiscal numbers have been surprisingly positive in January-February February witnessed a 4bn ILS fiscal surplus, following a 19bn surplus in January. The fiscal deficit is down to 2.2% GDP in the last 12 months. Tax revenues have increased sharply Covid expenditures have contracted, while non-Covid spending remains subdued. Positive fiscal numbers allow the MoF to further reduce bond issuance. In addition, the MoF may temporarily reduce taxes on petrol in order to “soften the blow” from spiking oil prices to the Israeli consumer.Israel approaches full employment In the 1st hal...

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