Exports may rebound as dollar gains

'Results could take time; longer-term outlook for shekel uncertain.'

export biz article 298 8 (photo credit: Ariel Jerozolimsk)
export biz article 298 8
(photo credit: Ariel Jerozolimsk)
The current rebound of the dollar could reverse some of the damage done to the country's exports caused by the strengthening of the shekel over the past year, experts said Monday. "Any damage that was done by the weak dollar to the country's export sector will likely be reversed by the current strengthening of the dollar," said Michael Sarel, a research analyst at the Harel Insurance and Financing Group. "Additionally, the negative impact now is much lower than the gains that have happened over the last five years - if the exchange rate would have remained at NIS 3.93 to the dollar for an extended period, then we would begin to see real damage caused." He estimated that such an exchange rate for an extended period would have brought about a 2% drop in exports. Since mid-May, however, when the shekel strengthened to a nine-and-a-half year high of NIS 3.93 against the dollar, the Israeli currency has depreciated sharply, reaching more than NIS 4.33 to the dollar on Monday. "The current weaker shekel, while it has not yet returned to the original NIS 4.5, 4.6 levels of early last year, will help exporters recover from the losses caused by the weak dollar," the Manufacturers of Israel agreed. While a weaker shekel means that Israel, whose economy is heavily reliant on the export sector, can be more competitive in the global marketplace, Sarel cautioned that it would take time before exporters begin to feel the effects the weaker currency will bring about. "We are expecting that this process will take about nine months before revenues can really stabilize again," he said. That's similar to the amount of time it took the stronger shekel to begin hurting exports. On Monday, the Manufacturers said the impact of the shekel's appreciation over the second half of 2006 and the first quarter of 2007 manifested itself in the second quarter, as the country's exporters recorded losses of 0.5 percent. "Not including diamonds, exports over the second quarter fell 0.5% to $8.2 billion in comparison to the numbers from the first quarter," said Ohad Marani, chairman of the Association's economic committee, who again appealed to the government to approve a NIS 460 million aid package to help Israeli exporters recover from losses suffered as a result of the weak dollar. The funds had been requested requested by a special committee appointed by Industry, Trade and Labor Minister Eli Yishai and headed by David Artzi, chairman of the Israel Export Institute. Yishai formed the special committee two months ago and charged it with composing a list of steps needed to be taken to assist manufacturers in their struggle to remain competitive in the world market despite suffering from losses brought on by the drop of the US currency. "We are still awaiting the decision of the government on the awarding of these funds - the money is crucial for Israeli manufacturers as it will help us increase and support the country's export numbers," said the Institute's spokesperson Danny Laish, who added that the money would be used primarily to boost export numbers, noting that for every increase of $1b. in exports, some 15,000 new jobs are created. Sarel noted, however, that while the shekel's appreciation against the dollar has hurt individual exporters, Israel's overall economic position has not been affected. "Every individual industrial exporter would like to see the shekel weaken against the dollar, as it drives up profits, but in the big picture, the shekel's strength against the dollar late last year and earlier this year won't be devastating to exporters." Sarel explained that he had researched the impact of exchange rates on exports, and found that a 1.2% change in the nominal exchange rate would cause exports to drop 0.3%. While it is impossible to know in which direction the shekel will go over the next few months, Sarel believes it will strengthen again if the global market calms down. "In the medium-term over the next three years, I think it will gain between 1-2% a year," he said. Others, however, are not so ready to assume the industry will be able to take in the impact of a stronger shekel. "The export industry was able to absorb most of the losses caused by the weak dollar, but right now nobody knows what will happen, said Howard Ross, the deputy director of the economic research department in the Industry, Trade and Labor Ministry. "At its current level of NIS 4.33 to the dollar, it is very similar to levels from one year ago and I think exporters will base costs at this value for the next six-to-12 months."