Despite Gaza War, Exports Turn Higher in 3rd Quarter

The Israel Export Institute reports a 4.5% increase in overseas sales, but whatever lost amid the fighting was made up by the depreciating shekel.

Ora Coren
Ora Coren
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Smoke, dust and debris rise over Gaza City after an Israeli strike on August 8, 2014, during the 51-day Operation Protective Edge.
Smoke, dust and debris rise over Gaza City after an Israeli strike on August 8, 2014, during the 51-day Operation Protective Edge. Credit: AP
Ora Coren
Ora Coren

The sharp depreciation of the shekel since the end of July may be doing the trick, figures from the Export Institute released on Tuesday showed.

The quasi-governmental institute reported that merchandise exports increased 4.5% in dollar terms over the same time a year ago to $13.3 billion. Not counting exports of polished diamonds, the rise was 5.5% to $11.2 billion, the institute said.

The increase came even though Israel was at war with Hamas for 50 days during the quarter, a conflict that briefly shut the country’s airports, disrupted manufacturing and distribution, and slowed port operations.

But whatever lost trade occurred due to the fighting was made up by the depreciating shekel. The dollar weakened Tuesday to a Bank of Israel rate of 3.7650 – down from a recent high of 3.79 last week – but it’s still 10.7% higher than it was on July 24, when the shekel began to lose value.

“The increase doesn’t yet point to a long-term change,” said Ramzi Gabbay, chairman of the Export Institute. “Nevertheless, the shekel depreciation against the dollar of about 11% in the last three months together with the latest purchasing managers index — which shows increased optimism about export orders — is building a foundation for us to be optimistic about a real change during 2015.”

The sturdy greenback is giving exporters high expectations for a further export recovery in the current quarter. The Purchasing Managers Index increased by 7.3 points to 49.9 points in September, the level that distinguishes between contraction and expansion, following a marked decline in July and August.

The third-quarter figures mark a sharp turnaround from the second quarter, when merchandise exports dropped 7% from the year before to $13.6 billion. A revival of export growth would also help reverse a slowing Israeli economy.

Third-quarter export growth was led by pharmaceuticals, mainly Teva Pharmaceutical Industries. They jumped 37% from a year ago to $1.4 billion. Chemical exports, which are dominated by Israel Chemicals, climbed 1.5% to $2.7 billion.

Exports of electronic components, a sector dominated by the Israeli unit of the U.S. chip giant Intel, were unchanged at $1.1 billion.

All three segments together, which account for close to half of Israel’s combined merchandise exports, saw a gain of 8.5% from a year ago to $5.2 billion. Other export categories climbed 3% to about $6 billion.

Farm exports, however, dropped 12% to $165 million and diamond exports by 2% to $2.1 billion.

Service exports, not counting startup companies, haven’t suffered the same decline as merchandise exports; they’ve shown a 12% increase year-on-year in the first seven months of 2014.

Shauli Katznelson, the Export Institute’s chief economist, said the rise was largely due to exports of software and research-and-development services by the hundreds of R&D centers operated by multinational companies in Israel.

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