We expect modest GDP contraction of 3.5% this year

ISRAEL - In Brief 22 Nov 2020 by Jonathan Katz

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Highlights: Q320 GDP growth reached 37.9% saar The level of GDP in Q320 is down only 1.4% y/y. Growth was supported by strong export growth, both industrial and hi-tech services. We expect GDP growth to decline by 3.5% this year and expand by 4.8% next year. Economic indicators continue to point to a gradual recovery Credit card purchases increased by 5.7% in the past week. Broad unemployment (including furlough) declined to 18% in the 2nd half of October from 22.7% in the 1st half. Consumer confidence in the 1st half of Nov reached -22 points, up from -32 one month ago, but still way below pre-COVID-19 (-6 in February). The PMI increased by 1.4 points to 54.9, reflecting expansion. Nevertheless, job vacancies in October remain 45% below avg 2019. Bond market: Foreigners have increased their share of government holdings to 7.6% in October from 5.2% in March, partially due to Israel joining WGBI, but also due to a steep curve and strong fundamentals. Bond issuance in 2021: This week we present our initial estimate of domestic bond issuance for 2021, assuming a lower deficit of 7% GDP (following 12% this year) and further issuance abroad. Much uncertainty still exists of course with no approved budget yet. We see an average of 10bn ILS per month, below that of recent months. This is generally positive for yields but we note that BoI bond purchases will also decline once the path of recovery is more apparent, sometime in the second half of 2021. FX: Last week, the Shekel appreciated by 0.5% against the dollar and by 0.1% against the Euro. Covid-19 infections stabilize at fairly low level: The number of infections has stabilized at a low level of 500-700 per day, and the p...