Israeli Economy on Surprising Upward Swing

Employment figures, tax revenues and consumer confidence all increased, but exports dropped in February.

Tomer Appelbaum

Israel’s economy showed unexpected strength last month, with improving numbers for employment and tax revenues running ahead of forecasts, the Finance Ministry said in its monthly economic review released Wednesday.

“Indices of economic activity are at high levels compared to the second half of 2013, the rate of employment in the labor market continued to grow, tax collections continue to exceed monthly forecasts and the capital market showed a positive trend in March,” the treasury said. “These developments contributed to the improvement in consumer confidence indices.”

The brisk economic activity is in sharp contrast to the Bank of Israel’s latest economic outlook released a month ago, when it lowered its 2014 growth forecast for the economy to 3.1% from 3.3% in December.

The labor force participation rate − the percentage of the population holding a job or actively seeking one − hit 60.5% in March, which the treasury termed “an extremely high figure in historical terms” and one of the highest among Organization for Economic Cooperation and Development countries, says the treasury.

Nevertheless, the treasury noted, the growth in employment came mostly in part-time work, while there was little change in the number of full-time employees.

Industrial production, as well as turnover in other sectors of the economy, has shown improvement in recent months, though high-tech manufacturing fell 5.5% in January, from a very high level the month before. Retail sales were unchanged in February after a drop in previous months.

As a result, Bank Hapoalim’s purchasing managers index, a popular gauge of economic confidence, rose to 50 points in February, its highest in 10 months. The bank’s consumer confidence index rose a sharp 4.2% in March, the treasury added.

The treasury report was backed up by one released by Barclays Capital Tuesday, which said that Israel’s economic fundamentals remain strong and that positive trends are likely to continue. Economist David Hewitt cited a tripling of Bank of Israel foreign currency reserves since 2008, growing current account surpluses, lower inflation and government debt ratios, as well as stable economic growth rates.

“With growth in 2013 at 3.3% … we expect roughly similar growth in 2014 and 2015,” Hewitt said. “With the [budget] deficit under control, some fiscal stimulus is possible in 2014-2015.”

Hewitt, however, warned that the bright picture is endangered by the strong shekel, which he said could leave to a loss of export competitiveness if left unchecked.

The treasury also noted some negative elements in the economic picture in its report. Exports fell in February by 1.6% because of a steep drop in exports to Asia. On the other hand, exports to the United States rose sharply − including high-tech exports − thanks to growing pharmaceutical exports.

Merchandise imports fell 6.1% in February, mostly due to a sharp 17.7% drop in imports of energy products. Israel’s trade deficit narrowed by 18.9% in February.