Israel's economy will likely take longer than expected to recover from the effects of the war (Al Jazeera)
The Israeli Hapoalim Bank warned investors and policy makers against being overly optimistic after data it saw as positive, noting that a large portion of Israel’s economic growth is due to the decline in the base number for comparison recorded last October after the Al-Aqsa Flood operation and the outbreak of the war on Gaza, which indicates... A full recovery may be longer than initially expected, the Jerusalem Post reports.
In a memorandum - part of which was quoted by the newspaper - the bank expected that the period of recovery in production levels would extend to more than a year. The report attributes the recent rise of the shekel - in part - to the continued rise in Wall Street indices and rumors surrounding possible progress in negotiations on a prisoner release deal.
to caution
The bank maintains a cautious stance on inflation in Israel, expecting it to rise by 2.8% over the next year, and at the same time excludes interest rates from falling in the near term due to concerns about stability and market conditions.
Regarding the disparity between local and foreign stock markets, the report pointed out that there is a noticeable risk premium that is added mainly in foreign stocks, and this discrepancy - which is evident in the difference in Israeli and American bond yields - highlights the difficult challenges facing the Israeli market amid global economic transformations. According to the newspaper.
The newspaper saw that the economic data last week painted a contradictory picture, as positive indicators - such as the Purchasing Managers’ Index - suggest an improvement in both the industrial and service sectors, although it is still lower than pre-war levels, and while high-tech exports remain resilient, work is underway. Government support provides relief to families and businesses, although concerns remain about the sustainability of such measures.
Inflationary pressures
Looking ahead, inflationary pressures may arise from factors including rising oil prices and transportation costs, complicating efforts to maintain price stability. The Bank of Israel's decision to maintain a stable risk premium underscores the importance of external risk factors in shaping monetary policy decisions.
In a related context, the Israeli newspaper Jerusalem Post expected that Israeli settlers would be affected if Israel’s credit rating was lowered. This is an expected step from several rating agencies.
The newspaper quoted Trust Fund, deputy director of marketing and sales at Ayalon, as saying, “The markets are already taking into account a reduction in the interest rate and risk premium for Israel with the decline in the credit rating.”
A director at the credit rating agency Standard & Poor's said the day before yesterday that the agency may lower Israel's rating if the war on the Gaza Strip expands to other fronts, but he expected that Israel would be able to bear the economic repercussions of the war if it did not expand by making the necessary adjustments in the budget. To compensate for higher spending.
Last October, the agency confirmed Israel's rating at "AA", but revised its future outlook to negative from stable, pointing to the risks of expanding Israel's war on the Gaza Strip with a more pronounced impact on the economy and the security situation.
Source: Al Jazeera + agencies + Jerusalem Post