Israeli Exports Slump to Seven-year April Low

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The shekel altered course

Israel’s deteriorating export performance hit a new low last month, as merchandise exports fell to their lowest April total since 2009, the Central Bureau of Statistics reported on Tuesday.

Merchandise exports came to just 13.6 billion shekels ($3.6 billion at current exchange rates) in the month, capping a sharp 21.7% annualized decline for the February to April period, the agency said. That marked a hastening of the 13.7% annualized drop in the three months, it added.

The dismal performance caused Ofer Klein, chief economist at Harel Insurance & Finance, to lower his forecast for economic growth in 2016 to 2.7%, from 3%. “Merchandise exports continue to be the economy’s weak point. Since the start of the year, they have registered about a 10% decline and their level is the lowest since 2009,” Klein said.

Although economic growth has remained relatively strong, the expansion has relied on strong consumer spending and falling unemployment. But in minutes of the Bank of Israel’s monetary committee last week, some members expressed concern that high levels of consumer spending could not propel growth indefinitely.

Meanwhile, exporters face an environment of slowing world trade and a shekel that has appreciated some 5% over the last 12 months in terms of the nominal effective exchange rate, making Israeli companies less price-competitive in overseas markets. The dollar strengthened on Tuesday about 0.1% to a Bank of Israel rate of 3.784 shekels.

Last month, the International Monetary Fund cut its global trade growth forecasts by 0.3 percentage points each to 2.8% in 2016 and 3.1% in 2017 due to the combined effect of slower pace of growth in United States and other advanced economies.

Klein said, however, that he expected the upward pressure on the shekel to ease as Israel’s current account surpluses were likely to shrink over the coming quarters, as higher world oil prices boost Israel’s import bill and the Bank of Israel maintains its policy of buying dollars to stem any further strengthening of the shekel.

In April, the central bank bought $1.2 billion, up from $700 million in March, he noted. The central bank, however, is unlikely to lower its base lending rate — now at a record low of 0.1% — which would help reduce demand for the shekel, Klein said.

Imports for the three months were up 0.1% on an annualized basis, slowing from a 5% pace in the previous three months. In April they reached 17.2 billion shekels, leaving Israel with a merchandise trade deficit of 3.6 billion shekels, the CBS said. The trade gap in the first four months of the year climbed to 13.6 billion shekels, more than double its 6.6 billion shekels the same time in 2015, it said.

Meanwhile, the import figures suggested some comedown in consumer spending. Imports of consumer goods rose at a 2.8% rate in February to April, down sharply from a 11.9% pace in the previous three months. Imports of consumer durables, like furniture and home electronics, were up at a 4.6% annual rate, the CBS said.

The CBS said the exports of high-tech products, which comprise almost half the total, dropped at a 32.1% annualized rate in February to April, hastening from a 22.7% rate in the previous three months. Exports of electronic parts plunged at a 68.1% rate and those of pharmaceuticals at a 41.3% rate.

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