Trade Data Point to Slower Economy

Merchandise exports and imports both decline in the three months to the end of May.

Shoppers packing the Azrieli Center mall in Tel Aviv.
Ofer Vaknin

Further evidence that the Israeli economy is entering a slump emerged on Thursday as the government reported that both imports and exports of goods declined in the three months preceding the end of May, compared to the previous three-month period.

The Central Bureau of Statistics reported that merchandise imports dropped at a 3.1% annual rate in March to May from the previous three months, a much bigger drop than the 0.1% rate in the previous period.

Merchandise exports fell even more sharply, posting a 10.5% annualized decline in the three months, hastening from a 0.4% pace of decline in the previous period, the CBS said.

The grim trade figures come amid growing signs that Israel’s economy is slowing. Gross domestic product expanded at just a 2.1% annual rate in the first quarter as consumer spending and investment both declined. Many economists expect the Bank of Israel to lower its base lending rate soon to stimulate growth.

Exports of high-tech products, which accounts for about 44% of total industrial exports, dropped in March-May at a 9.6% annual rate, reversing a 4.1% rise in the previous period, the CBS said.

Imports of raw materials, a barometer for future economic activity, were stable in March-May, but imports of capital goods, which are another barometer, showed a sharp 1.57% annualized drop, the CBS said.

Imports of energy products dropped 14.9% in the first five months of the year to $20.3 billion, a function not of a slower economy but of the growing use of domestically produced natural gas by the Israel Electric Corporation to generate power. In addition, this past winter was relatively mild, reducing home heat use.

The decline marks the end of several years of increased energy imports, as world energy prices rose and Israeli consumption increased.

Not all the trade news was negative. Imports of consumer goods rose at a 4.8% pace, with imports of consumer durables, such as home appliances, registering an 8.5% annualized increase, the CBS said.

Moreover, those declines in merchandise trade, however, were more than compensated for by a strong performance in Israel’s service trade, which includes everything from incoming tourism and software sales abroad.

The Federation of Israeli Chambers of Commerce reported earlier in the week that service exports climbed 6.4% in the first quarter of 2014 from a year earlier to $8.5 billion.

Although service exports account for just over a third of Israel’s total exports, their share is growing and their value-added is a very high 70%, the Chamber noted.

In addition, the CBS said Israel’s merchandise trade deficit averaged 3.5 billion shekels ($1.01 billion) a month in the first five months of the year, which works out on an annualized basis to 41.9 billion shekels.

If trends remain in place, 2014 will mark a sharp drop in Israel’s trade deficit – from 70.4 billion shekels in 2012 and 51.3 billion shekels last year.