Israel is seeking more partners for trade after the shekel’s surge against the U.S. dollar this year sent exports plunging in the third quarter.
The shekel has climbed 8.4 percent over the past year, the most among 31 major currencies tracked by Bloomberg, undeterred by three interest-rate cuts and $4.7 billion of foreign-currency purchases. Exports, which account for about a third of the $273 billion economy, tumbled more than 16 percent last quarter.
Economy Minister Naftali Bennett appealed to the Muslim world to ease trade barriers and open markets at last week’s World Trade Organization in Bali, Indonesia. He also pressed the idea of striking trade accords in talks with envoys from Russia, Vietnam, Thailand, Australia and others, according to an Israeli government official, who asked not to be identified because he wasn’t authorized to speak on the record.
“With the strong shekel and the weaker economies in its traditional trade markets such as Europe and the U.S., Israel is looking to push exports in other regions, especially the growing economies in Asia,” said Ofer Klein, head of economics and research at Harel Insurance & Financial Services.
The shekel weakened for a second day, depreciating 0.2 percent to 3.5021 by 5:17 p.m. in Tel Aviv, after an association of exporters yesterday urged the central bank to cut the benchmark lending rate, which at 1 percent is already the lowest since 2009.
The strong shekel “is a mortal blow to Israeli exports, especially in a period which the Israeli economy is slowing,” Ramzi Gabbay, chairman of the Israel Export & International Cooperation Institute, said yesterday in an e-mailed statement.
Israel Manufacturers Association, a separate group whose members produce 95 percent of the country’s industrial output, in October urged the government to target an exchange rate of 3.8 shekels to the dollar, and to promote exports from small and medium-sized businesses.
“I invite you to work together with me and my country to remove barriers standing in the way of achieving a flowering of global prosperity,” Bennett said in Indonesia, the first Israeli minister in 13 years to visit the world’s most populous Muslim nation, which has no diplomatic ties with his country. “I look forward to the day when I can sign free trade agreements with all our neighbors, including the surrounding Arab and Muslim countries.”
Israel and Russia this week agreed to conduct a feasibility study as the first step toward reaching a free trade area agreement that would also include Kazakhstan and Belarus, Bennett’s ministry said today in an e-mailed statement. The agreement may increase trade with those countries by more than 50 percent, the statement said.
Another focus of Israel’s export push is China, its second-biggest trading partner after the U.S., with annual imports and exports totaling more than $8 billion. Prime Minister Benjamin Netanyahu set a goal of boosting trade to $10 billion within three years during his trip there in June.
“We must make the national effort to enter Chinese markets and to create partnerships,” Netanyahu, who was accompanied on the trip by a high-level delegation of Israeli businesspeople, told a group of Shanghai business leaders.
This month, the Economy Ministry announced it would earmark more funds to promote exports to China, India and Africa through activities including trade delegations and national pavilions at expositions.
Israel’s top exporters include Teva Pharmaceutical Industries Ltd., Elbit Systems Ltd. and the Israeli branch of Intel Corp., according to the export institute. Israel’s trade deficit narrowed to $1.2 billion in October from $1.5 billion the previous month. Trade figures for November will be published tomorrow.
Bank of Israel Governor Karnit Flug sounded a pessimistic note about the country’s exports last month, predicting they would remain sluggish because of a falloff in global demand and a strong shekel.
The central bank has said it would buy $5.6 billion this year and next just to offset the effect of new natural gas revenue on the currency. Finance Minister Yair Lapid has promised to work with Flug to try to tame the shekel.
The export institute’s Gabbay called on the government to cancel tax exemptions for foreigners on interest income from medium- and long-term bonds, in order to prevent shekel appreciation.
The campaign to expand trade to new markets comes at a time when exports to Europe may be hurt by threatened sanctions protesting Israel’s settlement of captured lands Palestinians claim for a state. The European Union imposed funding restrictions on research programs run by entities operating in captured territories, and Lapid expressed concern this week that sanctions could widen if peace talks collapse.
“Exports are central to Israel’s success and our exports are dependent on our relations with the rest of the world,” Lapid said on Dec. 8. “I won’t elaborate here on the types of sanctions Israel could possibly face, as I do not want to give our enemies any ideas. Suffice it to say that the results would likely be extremely destructive to the economic welfare of each and every Israeli citizen.”