September 19, 2016

Bottom line: The current account surplus slipped for the fourth consecutive quarter — according to revised data using new methodology. However, at $2.66bn it is still comfortably large, with the surplus on trade in services still growing steadily. The deficit on trade in goods jumped by one-third from the first to the second quarter, but the latest trade data make clear that this deterioration is reversing in the third quarter.

In the financial account of the balance of payments, FDI inflows rose slightly in the second quarter, to $3.1bn, while portfolio investment inflows turned negative, to the tune of $1.5bn.

Because the current account data is so critical, yet is widely ignored in the media and barely understood among the general public, I will first give some general background.


  • A country’s current account is the summary of all its transactions with the rest of the world over a defined period(usually a quarter or a year). It has four main components: trade in goods; trade in services; primary income; secondary income.
  • Israel’s current account has the following characteristics:
    • trade in goods: includes manufactured goods of all sorts; diamonds (raw and polished); energy products (imports only); other raw materials.
    • trade in services: includes tourism (both directions); transportation services (air and sea, passengers and cargo); and, critically, ‘other services’, which includes software and computer consultancy; scientific R&D — including proceeds from sale of start-up companies; and other consultancy services.
    • primary income: comprises income from labour — income of foreign workers in Israel less income of Israelis working abroad; and income from capital — payment of interest and dividends on Israeli investments overseas less payments on foreign investments in Israel.
    • secondary income: unilateral payments made by foreign entities to a) the Israeli government (including government-to-government aid); b) Israeli institutions (e.g. hospitals, educational estabishments, etc.) and c) individuals (German restitution payments, personal bequests, gifts etc.) less unilateral payments made by Israeli entities to foreign entities.





  • The previous set of current account data, published in June, included a revision for 2013-2015 which resulted in a cumulative increase in the surplus for those years of more than $3bn. This time, the data included a methodological change and consequent revision which resulted in a cumulative decrease of some $1.2bn for 2013-2015 and a further $437m for the first quarter of 2016!
  • The current account surplus in April-June 2016, under the new measurement rules, amounted to $2.66bn, compared to $2.89bn in January-March this year and an average of $3.28bn during 2015.
  • The main factor behind this decline was an increase of almost $0.5bn in the deficit on trade in goods, from $1.5bn in Q1 to $2bn in Q2. This reflects the sharp increase in imports and the fall in exports in those months.
  • The surplus on trade in services rose by only $20m, to $3.5bn.
  • Primary income (see definition above) turned in a deficit as usual, but this was $70m lower than in Q1, at $1.15bn.
  • The surplus on secondary income rose by $170m over Q1, to $2.3bn.
  • The improvement in the trade deficit apparent in the data for July and August suggests that the negative impact of this factor on the current account will be reduced in the third quarter.
  • The financial account saw a continued strong inflow of foreign direct investment (FDI), of $3.1bn in Q2, up from $2.9bn in Q1. Israeli FDI overseas slipped to $1.27bn, from $1.54bn in January-March.  
  • The Bank of Israel’s reserve assets increased by another $2.5bn in the second quarter, to total $96.6bn.

Israel’s net foreign creditor position crossed the $12bn level, to total $121bn at end-June.

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