March 10, 2019

Bottom line: The surplus in Israel’s current account for October-December 2018 jumped to $4.19bn, one of the highest-ever quarterly surpluses. But don’t get carried away by this good news. The rise was overwhelmingly due to a massive $1.14bn surplus on primary income (see definition below) – by far the largest-ever surplus on this component, which usually posts a deficit. It is doubtful if this can be repeated and it may even be revised down in the future. Other than that, the picture was mixed, but the $500m decline in the surplus on trade in services is a negative, especially for the fourth quarter when this surplus usually posts a strong rise.


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 institutions, etc.) and c) individuals (German restitution payments, personal bequests, gifts etc.) less unilateral payments made by Israeli entities to foreign entities.



  • The current account surplus in October-December 2018 totaled $4.19bn, an amount only exceeded (slightly) in the second and third quarters of 2015.
  • The deficit on trade in goods increased slightly over Q3, to just under $4bn, but this is well below the levels of Q1 and Q2 and suggests that the rise in the trade deficit has peaked.
  • The surplus on trade in services fell by almost $500m from Q3. This is a large absolute decline, especially since Q4 almost always sees a rise in this surplus. If this data is not corrected, it must be a source of concern going forward.
  • That said, it should be noted that the services surplus, at $4.89bn, is the highest-ever, except only that for Q3. It is 18.6% higher than Q4 of 2017.
  • The surplus on primary income, at $1.13bn, is BY FAR the biggest-ever surplus in this item, and represents a swing of $1.6bn from the Q3 deficit of $469m. This seems implausible and too good to be true. A revision can be expected…
  • The surplus on secondary income rose by some $340m, but it was the Q3 total of $1.8bn which was rather low, rather than the Q4 total of $2.14bn being high. In fact, the latter is an average level for this item.



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