Current account gap posts big rise
Israel's current account deficit grew to a seasonally adjusted $1.67 billion in the first three months of the year, compared with a $858 million in the final quarter of 2011.
Israel's current account deficit widened sharply in the first quarter and is likely to stay in the red for the rest of the year, according to economists, breaking a four-year string of surpluses.
The deficit grew to a seasonally adjusted $1.67 billion in the first three months of the year, compared with a $858 million deficit in the final quarter of 2011, and a surplus of $1.06 billion for the equivalent quarter last year, according to the Central Bureau of Statistics.
Economists said the deficit would probably continue at the current level into the second quarter, which would leave Israel with a $6 billion deficit for the year. That would put the country into a full-year deficit for the first time since 2008.
The figures are due mainly to an increase in Israel's trade deficit in goods and services, which more than doubled to $2.6 billion in the quarter, from $1.2 billion in the final three months of 2011. The trade deficit averaged $400 million in the second and third quarters of last year.
The bureau attributed the trade deficit to the slowing economy in Europe, which cut deeply into Israel's merchandise exports. All told, merchandise and service exports fell to $22 billion in the quarter, from $22.1 billion in the last quarter of 2011. Israel's import bill increased to $24.5 billion from $23.3 billion, it said.
Foreign investors pulled some $1.6 billion out of domestic financial markets during the quarter, while direct foreign investment was less than half its rate in the previous quarter - $2.2 billion versus $4.71 billion. People in the foreign currency market said that trend was likely to continue as well, encouraged by an expected cut in domestic interest rates by the Bank of Israel later this month.
"The shekel has no more defenses," said one forex trader, who asked not to be identified. "The economy is entering a recession, interest rates are falling, dollars are leaving the country, small exporters are in a crisis and high-tech companies prefer to recruit staff overseas because of the high cost of engineers in Israel. Sooner or later the shekel has to weaken."
Despite the dollar exit, the shekel continues to strengthen against most currencies. Its depreciation against the dollar is mostly due to the weakness of the euro. Yesterday, the U.S. currency lost 0.3% to a Bank of Israel rate of NIS 3.881.