Current Account Data for First Quarter of 2014

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Bottom line: Israel posted its largest-ever quarterly current account surplus in January-March 2014 — of $3.5bn. This was almost double the (revised) surplus for the fourth quarter, of $1.8bn, and compares to an average quarterly surplus of $1.5bn in the six quarters ending in December 2013. However, the factors responsible for this outcome are unlikely to be repeated, at least in the same degree, and the surplus will shrink in the current and subsequent quarters.

• The key factor behind the exceptionally large surplus was the sharp decline in the deficit on trade in goods, from $2.3bn in October-December 2013, to only $1.9bn in January-March 2014. This reflects the sharp surge in diamond exports early in the year, discussed in our trade data analyses.

• Another important contribution to the overall result was the contraction in the deficit from “primary incomes”. This deficit shrank to an unusually-low $0.6bn, compared to $1.7bn in the previous quarter.

• On the other hand,  the surplus on trade in services — the main driver behind the current account surplus of recent years — fell from $3.2bn to $2.6bn.

• The large current account surplus spurredexport of capital. Israeli purchases of foreign securities,  mainly by institutional investors,  jumped to $4.7bn, the highest level since 2010.

• Foreign portfolio inflows also surged,  nearly tripling compared to October-December,  to almost $3bn.

• Nevertheless, FDI (foreign direct investment), inflows, at $2.9bn, were well above Israeli direct investment overseas, at $1.5bn.

• The size of the current account surplus is closely linked to the level of Bank of Israel intervention in the currency market. The central bank’s reserves rose by $3.6bn in the first quarter of 2014, the largest amount since the final quarter of 2010.

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