Bottom line: The latest GDP data are very confusing and should be handled with care. This is the first time we have seen fourth quarter (Q4) data on their own, and they present a very different picture to the second half (H2) data that the CBS press release (and hence the media reports) focused on. Our starting point is our comment on the Q3 data in November that “the weakness should be offset in the fourth quarter, as exports rebound”. We were right about exports (see below) but weakness in the domestic economy meant that overall growth was not much improved. In the event, Q4 did offset Q3 but, taken together, they produced the mediocre second half performance that the data reflect.
Bottom line: Don’t get carried away. The seemingly sharp drop in the January CPI, of 0.6% and which caused a stir among some economists, is not more than an exaggerated seasonal phenomenon. The index usually drops in January; this year it dropped by more than usual, but mostly because of transient distortions caused by the weather (see below for some examples): January 2014 was the driest on record and warmer than usual, too. The underlying trend remains toward lower levels of price inflation, but no dramatic change in this trend occurred in January.
(Was Originally Published at Knowlegde@Wharton)
Changing the Prescription for Israel’s Teva
On 11 February, when Erez Vigodman stepped into the corner office at Teva Pharmaceutical Industries, he didn’t come as a stranger to the company. He has been on the board since 2009 and this exposure should hold him in good stead. Vigodman has been brought in not as a pharma man but as a turnaround specialist. His knowledge of the company is something he will need if he is to prescribe an effective new dosage for the global pharmaceutical major.
- Bottom line: The Treasury hit a home run in January, getting its budget performance in 2014 off to a very strong start. The key features were strong revenues, even after accounting for one-off items and the impact of tax rises enacted last year, as well as continued restraint in spending. Obviously, the question is whether these trends will be maintained during the year. This seems unlikely, but January suggests that is by no means impossible.
- Bottom line: Overall, foreign currency reserves increased by $1.4bn in January – the most in a single month since August, but not much more than December’s $1.2bn. This cumulative $2.6bn rise, most of it from intervention by the Bank of Israel, did not stop the shekel from rising against almost all currencies in December and January, but it may have contributed to the reversal that has occurred in February.
Continue reading ‘Data on Israel’s Foreign Currency Reserves for January 2013’ »
Equity markets across the developed world reached the finishing line of 2013 in fine fettle, having notched up one of their strongest years this century (in some cases the best since the mid-1990s). The previews of the upcoming year were almost universally bullish – analysts who expected less than double-digit rises for 2014 were decidedly in the pessimistic camp. Meanwhile, many prominent bears had given up during the bull run of 2013 and the few that remained preferred to keep a low profile.
There is now, finally and very belatedly, a broad consensus among economists and analysts of the Israeli economy, both in Israel and abroad, that the Israeli shekel is overvalued. It is agreed by most — although still not all – of these mavens that this state of affairs is problematic, because it causes cumulative damage to the corporate sector, and in particular to exporters and their sub-contractors. The corollary of this consensus that there is a problem, is the conclusion that something should be done about it. However, at this point, the consensus collapses into a welter of disagreements as to what exactly should be done.
Bottom line: The 0.1% rise in the CPI for December was – for a change – in line with forecasters’ consensus prediction and brings the annual rise in the Index to 1.8% for 2013, compared with 1.6% in 2012. These are very benign levels and confirm the absence of any inflationary pressures in the Israeli economy. Housing prices continue to rise, but these are not feeding through to other sectors. If the economy weakens further, there is a danger of deflation – especially if the shekel continues to rise in value.
- Bottom line: The budget deficit for 2013 came in at NIS33.2bn, or 3.13% of estimated GDP – even lower than expected. Beyond that, the latest data contained no surprises and they point to two key conclusions: the good news is that the Treasury is on top of the fiscal situation, with spending comfortably under control. The less good news is that here is little room for maneuver and no room for complacency. If anything goes wrong in 2014, whether at home or abroad, the budget will be severely stretched.
Bottom line: There were no surprises in the latest batch of data and estimates from the Central Bureau of Statistics (CBS). The annualized rate of GDP growth for Q3 was reduced from 2.2% to 2%, and the full-year rate of growth to 3.3% from 3.4% in the previous estimate, published in October. The implication is that the CBS expects the fourth quarter to be much better than the third – an annual rate of growth of around 4%, apparently – but there is no indication as tohow much of the rebound in exports that has been reported in recent months has been taken into account.