| Yaniv Bar, economist in Leumi’s economics department
| The volumes of tourism entering and leaving Israel remain low compared to the pre-corona period
The data of the Central Bureau of Statistics (CBS) show that in the month of November the volume of departures of Israelis abroad (by air, seasonally adjusted data) amounted to approximately 587 thousand. This volume reflects an increase of approximately 10.5% compared to the previous month, and an increase of approximately 35% compared to the corresponding month last year, which was still significantly affected by the restrictions of the corona virus in Israel and around the world.
This figure indicates an improvement in the volume of Israelis going abroad, after it had been in a continuous downward trend since it reached its peak in May of this year. However, despite the increase, the volume of departures abroad in November remained low compared to the average monthly volume in 2019 (the last full year of tourism which preceded the outbreak of the corona epidemic in Israel).
At the same time, the volume of tourist arrivals to Israel (by air, seasonally adjusted data) amounted to about 223 thousand in the month of November, about 5.3% lower than the previous month, but about 2.8 times higher compared to the corresponding month last year. Similar to Israeli departures, the volume of tourist arrivals is also at a low level (by one third) compared to the average monthly level in 2019.
Looking ahead, the recovery of the tourism industry is expected to remain gradual and moderate. The current global macro environment, which includes the increase in inflation, which erodes the purchasing power of households, the monetary tightening, which burdens, among other things, consumer credit, and the expected slowdown in economic activity, are expected to continue to burden the demand for tourism services worldwide, and in Israel as well.
| The nominal wage has been growing in recent months at a slower rate than inflation, and as a result the real wage has eroded
The CBS data shows that in the third quarter of the year the average nominal wage in the economy as a whole was about NIS 11,843 (data adjusted for seasonality, at current prices). This is a figure that reflects an increase of about 1.4% compared to the previous quarter, and an increase of about 3.0% compared to for the third quarter of 2021.
However, the real wage (at constant prices), which takes into account the development of the cost of living, increased by a very moderate rate of approximately 0.1% in the third quarter of 2022 compared to the previous quarter, and decreased by approximately 1.8% compared to the corresponding quarter last year.
That is, looking at the economy as a whole, the nominal wage does continue to rise, but at a rate that is lower than the rate of price increase. A development that causes erosion in the incomes of the employed public in Israel. The gap between the annual growth rate of the nominal wage (3.0%) and the (negative) annual growth rate of the real wage (-1.8%), stands at 4.8%, which is actually the annual rate in the third quarter of the year.
It can be seen that the gap has widened significantly in recent months, to a level that is unusual compared to the past, as well as the presence of the real wage growth rate in the negative area. In addition, we note that this gap is expected to widen, in light of the actual increase in inflation in October (to a level of 5.1%), as well as against the background of our forecast for the continued increase in inflation in the coming months to a level of approximately 5.5%.
This development is expected to weigh on the economic situation of households and to be expressed in a slight moderation in the expansion of private consumption. In our estimation, private consumption is expected to grow at a rate of approximately 7.3% in 2022, a rate that is expected to moderate to approximately 3.3% in 2023.
| The gap in the rate of real wage growth in the business sector compared to the public sector has widened significantly recently
The significant increase in inflation in recent months has led, as mentioned, to a decrease in real wages in the economy as a whole. However, there is a large difference in the development of the real wage in the division by activity sectors – business sector versus public sector.
In the third quarter of this year, the annual growth rate (quarter versus corresponding quarter) of the real wage in the business sector was about 0.1%, while in the public sector the real wage shrank by about 4.2%. It can also be seen that from the beginning of 2022, the gap in the development of real wages between the business and public sector has been widening. This is because the nominal salary grows at a faster rate in the business sector than in the public sector.
The drop in real wages in the public sector is due to past agreements between the Ministry of Finance and the Histadrut. However, the (nominal) salary in the public sector is expected to increase in the coming months, partly due to the formulation of new salary agreements with the teaching staff, which are expected to lead to new salary agreements in other areas in the near future, after the establishment of a new government.
This development, along with the continued increase in nominal wages in the business sector, is a factor that is expected to generate inflationary pressures down the road.
| Business trends survey: continued expansion of business sector activity at a steady pace, and expectations for continued expansion
The CBS business trends survey for the month of November indicates the evaluation of the companies in the local business sector for continued expansion at a steady pace of economic activity, at the present time and looking ahead.
The findings of the survey show that the net balance (that is, the weighted difference between the percentage of company managers who reported a benefit in the situation and the percentage of company managers who reported a deterioration) of the entire business sector regarding the state of the company at the present time (the economic situation as of today) is in an environment where there was an outbreak The corona crisis.
This trend characterizes most branches of activity, including the hotel industry. However, the net balances of the industries: construction, due to the slowdown in the residential real estate market; and services, due to the global slowdown and areas of activity that have not yet fully recovered from the effects of the Corona crisis; indicate a slightly lower rate of expansion than the average of 2019.
Looking ahead, the companies’ expectation regarding the economic activity in the next three months (weighted average of all industries), as well as regarding the change in the scope of the employed, is on a downward trend since the beginning of the year, although, it is still positive and points to expansion. It should also be noted that the component of expectations for economic activity rose relatively sharply in November, but we must wait for the data of the following months to determine whether this is a change in trend.
In an overall view, future expectations are positive in most branches of activity, an indicator that points to continued growth in economic activity in the economy. This is a figure that supports the continuation of the interest rate raising process by the Bank of Israel. In our estimation, at the next meeting (01.02.23) an interest rate increase of 50 basis points is expected to the level of 3.75%.
PDF Document: National Economist’s Macro Review
The writer is an economist in Leumi’s economics department. The data, information, opinions and forecasts in the review are provided as a service to readers, and do not necessarily reflect the official position of the bank. They should not be considered a recommendation or a substitute for the reader’s independent judgment, or an offer or an invitation to receive offers, or advice for the purchase and/or making investments and/or any operations or transactions. The information may contain errors and changes may occur. The bank and/or subsidiaries and/or companies related to it and/or controlling owners and/or interested parties may from time to time have an interest in the information presented in the review, including financial assets presented in it.