Treasury sees emerging weakness in Israel's labor market

Moshe Kahlon  photo: Reuters

"The labor market continues to be at full employment, but there are warning signs."

The Ministry of Finance warns of signs of a negative turning point in the labor market in Israel, on the basis of figures released by the Central Bureau of Statistics last week. According to the latest figures, the rate of participation in the workforce fell slightly in June, while the unemployment rate rose to 4.1% from 3.7% in the previous month.

"The labor market continues to be at full employment, but there are warning signs," the Ministry of Finance states in the weekly survey by the ministry's chief economist published today. "The June reading is weak in comparison with the previous two months. Since the monthly figures fluctuate, there may be retrospective revisions, but all in all the second quarter numbers indicate a weakening in employment growth," the survey says.

The chief economist also points out that most of the new jobs that have been created are in the public sector. A further worrying trend is the weakening of Israeli goods exports, which occurred even before the recent appreciation of the shekel. The Ministry of Finance explains the decline in exports such as drugs, chemicals and diamonds by the fall in prices on world markets as a result of the trade war.

The chief economist comments on the estimate of a fall in the annual growth rate of the Israeli economy for the second quarter to 1-2%, from 5% in the first quarter, and explains why, despite this, "the growth figures so far are consistent with the annual growth forecast," that is, growth of 3.2-3.4%.

The reason is the wave of new car purchases in the first quarter in advance of the rise in purchase tax on hybrid vehicles, which came into force in April. The Ministry of Finance estimates that this accounted for 1.5% out of the annualized growth rate in the first quarter. A similar phenomenon occurred in in the first quarter of 2017, when the Central Bureau of Statistics reported a growth rate of just 0.8%, following a wave of vehicle purchases at the end of 2016.

In the addition, the Ministry of Finance points out that the second quarter growth estimate is based on partial data, "and therefore there may be a material deviation from the reported growth rate."

On the other hand, consumption figures for the second quarter show a substantial rise from the previous quarter, mainly in consumer imports (by 2.7%), retail chain sales (2.7%), and credit card purchases (2.4%).

As for the decline in exports, goods exports fell sharply in dollar terms in the second quarter, mainly because of low export figures for drugs, chemicals, and diamonds, which contrasts with the previous quarter, in which goods exports rose by a similar amount.

"This decline can be explained, at least in part, by the 2.5% fall in the Thomson Reuters/CoreCommodity CRB Index. This fall reflects the stagnation in world trade since the beginning of this year," the Ministry of Finance states.

"As far as exports of services are concerned," the survey continues, "the partial data we have indicate that the positive trend of growth in this item continues. Altogether, second quarter export figures are expected to show weakness and to make a 3% negative contribution to the quarterly growth rate."

Published by Globes, Israel business news - en.globes.co.il - on August 5, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

Moshe Kahlon  photo: Reuters
Moshe Kahlon photo: Reuters
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