Daily Roundup / As Deficit Surges, Government Bonds Implode

Leading indicators are not looking good and anticipation of VAT hike drives car imports; on the upside, pears are in season.

Leading indicators lead to bond rout: The publication of multiple leading indicators showing difficulties in the economy triggered a rout in government bonds on Tuesday. The deficit for the last 12 months surged to 4 percent of GDP, which is well beyond target, and in parallel the people of Israel learned that exports have been contracting. The average wage has been too, shrinking by a hefty 3 percent in two months to NIS 8,816 a month in gross terms. The onslaught of negative indicators spurred the Bank of Israel's research department to warn that if these trends persist, it will revise its growth forecast for 2012 downwards, from 3.4 percent to something less (its forecast for 2012 is 3.1 percent). While on the Bank of Israel, its 12-month inflation forecast is 2.4 percent and still on topic – the central bank stated clear as day that it doesn't expect to lower its benchmark rate any further this year, but to leave it at 2.25 percent. That will confound not a few economic analysts, who had been predicting at least one rate cut this year.

Israel tax collection within "norm": Incidentally, tax collection in Israel amounted to 32 percent of GDP in 2010, while the OECD average is 35 percent, a Bank of Israel representative told a delegation from Standard & Poor's a couple of weeks ago. It bears saying there's nothing like a "developed world norm" in this respect. The U.S. ratio is 25 percent but Denmark's (for instance) is 48 percent, while France's is 43 percent. Regarding civilian public expenditure, Israel turns out to be mean: 32 percent of GDP. The only developed nation spending less of its GDP on civilian public expenditure is South Korea, the central bank representative told S&P.

Car imports jerk forward: Unfond expectations that VAT will be rising, from 16 to 17 percent, triggered a surge of car imports in July. That month new car imports shot up 22 percent from the corresponding period of the year before to 25,000, according to tax figures. To illustrate the extraordinary nature of the July spike, new car exports this year are down 6 percent from last year as consumer confidence trembles.

Pear glut: But there's good news too. Israel's pear crop is 25 percent bigger this year than last year. At least that's good news for farmers and fruit flies. For consumers it seems to make no difference: the glut of the fruit didn't lower prices a sou. At least let them take comfort in the thought that, according to Haim Kamin of the fruit processing company Galil Kirur, pears are rich in potassium: a medium-sized pear weighing 90 grams has 90 calories and 2 grams of fiber which makes the consumer feel nicely sated, Kamin says. Now you know.

Why did Discount Investment bound like ibex? After losing 79% of its stock-market value in the last 12 months, Discount Investment Corp stock shot up 23% on Tuesday. From Sunday (when the Tel Aviv Stock Exchange is open) to Tuesday, Discount Investments gained 48%. Why might that be? Certainly, the company, which belongs to the giant IDB group of holding companies, didn't issue any announcements, let alone anything that would skyrocket its stock. Elad Krauss, the real estate analyst over at Harel Finance, thinks the reason is investors feel Discount Investments (a holding company) is a sort of option on its subsidiaries. "Discount Investments' heavy leverage makes it am option on Cellcom, Super-Sol, Koor and Property & Building," Krauss explains. In other words, any movement at subsidiary gets amplified at the parent company. He suspects that Discount Investments stock is going to be very volatile in the foreseeable future.

With reporting by Moti Bassok, Eran Azran and Ram Ozeri.

Tali Shani