Israeli exports have fallen substantially, regressing to their 2010 level, Ministry of Finance chief economist Yoel Naveh wrote in his weekly review, published today. Naveh confirmed that the concentration of Israeli exports in three companies made the sector very sensitive to events at those companies, while the drop in exports did not reflect a decline Israel's trade terms or its economic situation. He warned against additional export subsidies, which he said could be interpreted as opposition to the Bank of Israel's purchases beyond their current levels.
"Israeli export figures show a significant worsening since the beginning of 2016," Naveh wrote, adding, "Israeli exports fell 10% in current dollar terms between December 2015 and April 2016. The strengthening of the shekel during this period makes the decline in current shekel terms even greater. This decline is a continuation of the downtrend in exports since early 2014, but the rate of decline has become more significant in recent months."
Naveh went on to write, "Israel exports averaged $3.5 billion a month, the lowest total for these months since 2010. For the sake of comparison, exports averaged $3.8-4.1 billion a month in these months in 2011-2015."
Before analyzing the causes of the fall in exports, Naveh noted, "The level of concentration in exports is fairly high, with the electronic components, drugs, and chemicals sectors accounting for nearly half of total exports. Furthermore, concentration within these sectors is very high, with one company accounting for the bulk of exports in that sector. As a result of this unique structure, a drop in exports in one of these sectors is liable to have a negative effect on all Israeli exports.
"In a case like this, the drop of exports will be a result of microeconomic factors, such as the factors relevant to a specific sector (such as a drop in the prices of specific commodities), not macroeconomic factors, such as those having a negative impact on the economy as a whole (e.g. real appreciation of the shekel). The use of macroeconomic tools, such as export subsidies, in such a case will create new economic problems, and will not help solve the problem with exports."
In his analysis according to export target countries, Naveh found that the main targets contributing to a decline in exports were the UK and Turkey, which accounted for half of the drop in exports. The fall in exports to these two countries is reflected in a steep (70%) decline in exports of chemicals to Turkey, which accounted for the entire drop in exports to Turkey, and exports of pharmaceuticals to the UK (the 40% drop in pharmaceuticals exports accounts for 90% of the decrease in exports to the UK). "These figures reflect the substantial contribution of the chemicals and pharmaceuticals industries to the fall in exports," Naveh wrote.
Published by Globes [online], Israel business news - www.globes-online.com - on June 14, 2016
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