• Sani Ziv

Weekly update 08.03

עודכן ב: אפר 13

The economic outlook looks gloomy, with coronavirus spreading and threatening to slow down economic growth. Israel has quite a low number of cases compared to other OECD countries (4.4 cases per 1 million population compared to Italy's 97 cases per 1 million population). However, due to severe policy measures implemented by the Ministry of Health, thousands of people are in home quarantine, most international traffic is halted, many sports and business and cultural events are being canceled, and many restaurants and shops are reporting a fall in customer demand.

The economic indicators released last week on the state of the economy were quite robust, but most of them are irrelevant, as the virus impacted the economy only in the last days of February. For example, the government's trailing 12 months deficit stood at 3.1% in February, down from 3.7% in December 2019. However, since economic activity is shaken by the coronavirus outbreak, tax revenues are expected to fall and the budget deficit is bound to increase. Another example is the Consumer Confidence Index, which was elevated in February but is now expected to lose ground.

Looking ahead, if the virus spreads in Israel, the economy is expected to fall into a recession in the second quarter of 2020, for the first time since 2012. All major economic institutions cut their growth forecast over coronavirus, declaring that the coronavirus outbreak will have a major impact on global economic growth this year. The OECD lowered its global GDP forecast by half a percentage point, to 2.4%. The Ministry of Finance estimated last week, that the possible impact of the coronavirus would be to reduce Israel’s growth between 0.25%-1%. We expect a much slower growth numbers this year.

Data released last week:

Wednesday, March 5: The trailing 12 month (TTM) budget deficit declined to 3.1% of GDP, compared to 3.2% in January and 3.7% in December 2019. The lack of approved budget is contributing to the low deficit. Economic activity was positive during January-February, contributing to income growth and reducing the budget deficit. Looking ahead, we expect a weakening in tax collections due to coronavirus.

Wednesday, March 5: Israel’s foreign-exchange reserves at end-February 2020 stood at $131,151 million, up $1,176 million from their level at the end of January and up $11,682 million compared to September 2019. The BOI purchased $2,764 million in February, following purchases of $6,799 million in October through January 2019, reiterated its preference for foreign-exchange intervention over lowering rates.

Wednesday, March 5: The CBS Business Tendency Survey in the industry and commerce sectors was negative in January, at -1.3%. The net balance measures the proportion of businesses reporting an increase in sales in January compared to December compared to those reporting a decrease in sales. The net business balance in the tourism industry decreased sharply

Wednesday, March 8: The current account surplus stood at $3.5 billion in the fourth quarter of 2019, and $14.4 billion for the all year 2019. The current account surplus as a percentage of GDP reached 3.9%, compared to 2.9% in 2018. Looking forward, we expect further improvements in the foreign-sector balance due to Gas exports form the Leviathan Reservoir.

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