Treasury Discounts Importance of Israel's Sagging Exports

Analysis shows problem concentrated on three sectors and not an economy-wide problem.

Intel Israel

The Finance Ministry sought on Tuesday to put Israel’s sagging export performance into perspective, saying the decline was due to problems that particular companies and industries were having rather than economic fundamentals.

“It would be difficult to attribute the deterioration to macroeconomic factors – rather it is better to say that it is more connected to a confluence of microeconomic developments in sectors that account for the lion’s share of Israeli industrial exports, not counting polished diamonds,” Treasury Chief Economist Yoel Naveh said in a report.

While acknowledging that exports to Turkey and Britain accounted for about half the decline in exports in the first four months of 2016, he said the decline was better analyzed by industry than by destination.

From that perspective, Naveh said, 80% of the decline came from lower exports in pharmaceuticals, electronic components and chemicals. The three have an outsized impact on Israel’s overall exports because together they account for nearly half of Israel’s exports, he said.

Chemicals exports, most of which are generated by Israel Chemicals’ agrochemicals sales, have fallen in the wake of declining prices for farm products. Exports of electronic components came mainly from Intel’s Israel subsidiary, which has reduced output at its giant plant in Kiryat Gat while it upgrades the facility.

Pharmaceutical exports, which come mainly from Teva Pharmaceuticals, the world’s largest maker of generic drugs, tend to be volatile and are down in a trough, the treasury said. It said that discounting those three categories, Israeli industrial exports have been flat so far this year, compared with a year earlier.

The report came a day after the Central Bureau of Statistics reported that merchandise exports were down 18.4% in the March-May period on an annualized basis. High-tech exports, which account for nearly half the total, were down at an even sharper 27.8% rate, it said, led by a 71% drop in electronic components.

The decline in exports, together with continued increases in imports, widened Israel’s trade deficit in the first five months of the year to 19.8 billion shekels ($5.1 billion), nearly three times the 7.3 billion deficit run up a year earlier. May alone saw a yawning deficit of 7.4 billion shekels.

Ofer Klein, chief economist of Harel Insurance & Finance, said declining exports were unlikely to have a pronounced effect on Israel’s economic growth and discounted warnings about a recession.

“Merchandise exports are in a bad state. We believe a significant change in direction will only come about in the middle of 2017, which is when Intel’s new factory begins exporting,” he wrote on Tuesday.

“Meantime, against the background of high tax collections, continued strong imports of consumer and capital goods, rapid wage increases and high levels of consumer confidence, it appears that second-quarter economic growth will be reasonable-plus,” Klein added.