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The
year 1999 difference between export-import was
huge and the current-account deficit in the
balance of payments fell to $ 850 million due
to the sharp increase in the deficit on the
goods account, the smaller deficit on the
services account (due largely to the rise in
tourism), and marked increase in unilateral
transfers. The current-account deficit is
financed by capital transfers from abroad to
an extent similar to that of 1998-$ 0.4
billion-by investments of nonresidents of
about $ 0.5 billion (up by about $ 100 million
over 1998), while on the other hand
investments abroad by residents amounted to $
290 million. The implied capital exports of
the private sector amounted to $ 700 million
in 1999, and were lower than in the two
preceding quarters ($ 750 million and $ 1
billion respectively). In the first half of
1999 goods imports increased (by 9 percent),
goods exports rose more steeply (12 percent),
and the trade deficit, which had widened in
the first half of the year, fell by some 3
percent in the second half, despite the slight
deterioration in Israel's terms of trade in
1999:III. Imported intermediates, which serve
as a partial indicator of current activity,
rose consistently throughout the year, and
were 5 percent higher in the period reviewed
than in the equivalent period in 1998. Imports
of capital goods, serving as an indicator of
future activity, were 21 percent higher in the
period reviewed than in the equivalent period
in 1998,imports of consumer goods rose by 4.3
percent, after fluctuating during the year.
Manufacturing exports were up by 13 percent in
the period reviewed (current dollars) over the
equivalent period in 1998. This increase,
which encompassed most industries and is the
most marked in the last three years, is one of
the signs of Israel's economic recovery, which
stems inter alia from the upsurge in world
trade. No table increases were evident in the
high-tech industries, which have led exports
in the last few years (incorporating
communications equipment, machinery and
equipment, electronic components, and
computers), while in mining and quarrying,
wood and furniture, and textiles and clothing
the growth of exports slowed. An analysis of
the trend shows that, after adjusting for
seasonal effects and irregular factors, the
growth rate of goods exports and imports
slowed in the period reviewed, although they
continue to be high: from September to
December 1999 exports rose by 13 percent,
compared with 22 percent in February-August
1999-a slowdown that encompassed most export
industries-while goods imports rose by 11
percent, compared with 14 percent from March
to August 1999. In 1999 the diversion of goods
imports towards the US (which accounts for
about one quarter of Israel's non-diamond
imports) is notable, and since exports to the
US grew only relatively slightly, Israel's
trade deficit with the US grew by 150 percent,
to stand at about $ 1 billion.
There
were mixed trends on the
foreign-currency market during
the period reviewed. The shekel
depreciated (against both the
dollar and the currency basket)
in 1999 and appreciated slightly
in 1999, and since these changes
occurred within the
exchange-rate band the Bank of
Israel did not intervene in
trading, in accordance with its
policy. The depreciation in 1999
appears to have derived inter
alia from uncertainty regarding
the government's decisions on
the inflation target and the
national budget, and this was
reflected in a slight rise in
the standard deviation of the
price of the Bank of Israel's
dollar/shekel options and the
widening of interbank spreads in
foreign-currency trading.
In 1999 capital inflow
increased, due to large share
offerings abroad by high-tech
and communications firms
(chiefly in October),
developments in the political
process, the accelerated upsurge
in stock markets in Israel and
abroad, and foreign investors'
long-term considerations. This
expansion led to the
appreciation of the shekel
despite the narrowing of the
interest-rate spread between it
and the currencies in the
basket. The Bank of Israel's
foreign-exchange reserves rose
in dollar terms by $ 587 million
during the period reviewed-less
than the rate by which they had
fallen in the first half of the
year ($ 743 million)-and at the
end of the period stood at $
22.5 billion.
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