The current account deficit in Israel's balance of payments narrowed dramatically in the second quarter - to just $90 million from $1.4 billion in the first three months of the year - as exports of goods and services rose, the Central Bureau of Statistics reported yesterday.

The growth in exports and a decline in imports of goods and services narrowed Israel's trade deficit for the March-June period to just $300 million from $2.5 billion in the first quarter. Exports rose 4.6% in the quarter from the previous three months to $23.2 billion while imports declined 4.8% to $23.5 billion, the CBS said.

The decline in the deficit was, however, partly offset by downturns in income from investments held by Israelis abroad and lower worker remittances. Unilateral transfers, the other component of the current account, were also down slightly.

While the second quarter saw a sharp drop in the current account deficit, it still marks the third quarter in minus after eight years of continuous annual surpluses - a data point that testified to the strength of the Israeli economy, especially during the global financial crisis. Moreover, recent data point to deterioration in foreign trade.

On Wednesday, the CBS said the trade deficit swelled 56% in August compared with the same time a year ago, to NIS 8.9 billion as export growth failed to keep up with higher imports

The CBS said the merchandise trade gap narrowed to $2.6 billion in the second quarter from $3.7 billion in the first. Israel's services trade was in surplus to the tune of $2.4 billion, but the surplus narrowed by 12.2%.

Foreign direct investment rose to $2.6 billion in the second quarter, an increase from $1.6 billion in the first quarter, but down sharply from $4.7 billion in the final quarter of 2011.

It said foreigners were net sellers of Israeli stocks and bonds for the fourth straight quarter, divesting some $2.4 billion in the second quarter.