Arresting protesters against the legal revolution.
The atmosphere of the underprivileged also creates economic opportunities that can be exploited (Photo: Reuven Castro)
The Israeli economy with high added value, so states unequivocally the international credit rating company Fitch, which left the rating for Israel's long-term foreign currency debt at +A. The Israeli economy is diverse and resilient, the rating
company emphasizes. The Israeli economy has financial strength against markets The international capital despite the high external security risks and a succession of unstable governments, as well as (still) high external debt - according to the rating agency (a debt that will decrease in 2024 to 57.9%, after 61.6% in 2022 and 68.9% in 2021). We note that The rating agency forgot to mention that the debt to GDP in all the OECD countries, the member countries of the Organization for Economic Cooperation and Development, where the debt was 90% in 2020 and 88% in 2022. Fitch
predicts growth of the Israeli economy this year, at a rate of 2.9% and another 3 % next year and after that, exhausting long-term growth. The news is that the inflation rate has dropped to 3% at the end of the year, our expectation is that inflation will be even lower than that.
Fitch also states that despite the monetary tightening, i.e. the interest rate hikes by the Bank of Israel, which will naturally harm private consumption and investments in the economy, growth will be good due to several factors;
The continued export of the hi-tech industry, population growth (we note that it is the maximum in the OECD countries), as well as an increase in government spending after the approval of the budget.
Therefore, the budget deficit this year will be 1.8% after the surplus in 2022 and a higher budget deficit of 2.5% in 2024 - beyond the government's 1% goal.
The deficit will rise against the background of the demands of the coalition members, infrastructure needs and wage increases in the public sector, the rating company states.
Another strength is the security export mentioned in passing.
Hightists demonstrate in Tel Aviv.
Will defense exports compensate for hi-tech cooling off? (Photo: Yanon Shalom Yathach)
We note that the high-tech industry that led Israel will cool off later this year, says Fitch.
I am of the opinion that the slight decrease in high-tech activity, which is not related to what is happening in Israel, but rather results from a decrease in the recruitment capacity of high-tech companies in the world, mainly through Nasdaq, will be balanced against a background of tremendous security exports due to a global arms race that has not been the same for decades, in the shadow of the Russian invasion to Ukraine.
Countries with deep pockets are reaching out to Israel to purchase defensive security equipment, such as the Iron Dome that Germany is seeking to purchase (for which American approval is required), or various equipment that the Japanese are seeking to test, this is in addition to the veteran buyers such as India and other countries in Southeast Asia. Only this week China announced, against which the US is increasingly confronting, that it is increasing its defense budget by an additional 7.2%, to 230 billion dollars, this after raising the defense budget in 2022 by 7.1%, which will prompt Japan, India and South Korea to examine and purchase more equipment from the Israeli defense industry.
We note that the US has increased its defense budget for the current year that will end in September to $800 billion.
Another point we note that does not appear at all in Fitch's review is the increasing export of gas from Israel, only in 2022 there was an increase of about 29% in the export of gas to Egypt and Jordan, according to the Ministry of Energy, which reduces the pressure on gas demand in our regions due to Europe's growing gas needs (in view of the reduction in purchases from Russia due to the invasion of Ukraine). What you all already know is that real estate prices will moderate, according to Fitch as
well , because of the mortgage interest rate linked in part to the prime interest rate, which jumped at a tremendous rate in the last year, as well as the accelerated construction of apartments in recent years.
Israel's banking system is strong and the equity capital of the banks is in optimal condition.
Israel maintains a strong financing capacity with strong demand for government bonds from a variety of investors, the rating agency says.
We will explain, local demand, naturally, depends on the increase in the institutions due to the increase in the number of workers in the economy.
Please note, the number of jobs increased in 2022 by 8.8%, to 3.942 million!, which means more and more provisions for pensions and training funds.
Israel also has a global investor base and the bonds that are purchased by Diaspora Jews.
The political tension between the government and the opposition is not expected to add significantly to the increase in financing costs, states Fitch, but the expansion of the budget deficit by increasing the budget for a population with a low rate of employment, meaning the ultra-Orthodox, may cause an increase in debt.
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Unlike in other countries where a similar reform in corporate governance has been affected, it is not at all clear that it will be affected in Israel (Photo: ShutterStock)
An investment opportunity
We will add that the strength of the Israeli economy, an increase in GDP, demand for Israeli bonds, a low deficit in the budget and above all a low debt relative to GDP that will continue to decrease, while apartment prices are at a standstill towards a significant decrease, is an opportunity for Israeli investors. Who needs to purchase an investment house when the Bank of
Israel Granting interest on the MCM which this week stood at 4.9% in an investment for a year?
Who needs to invest in an investment apartment when the Israeli government gives a 4.2% per year yield through the four-year bond, or close to 1.2% compounded per year? All this without purchase tax, attorney fees, brokerage, finding a tenant, renovation - and even the easiest (and of course sometimes also heavy funding)?
We need to take advantage* of the uproar created by the wave of political tension that has not been seen in Israel for decades.
Fitch goes against the words of Foreign Minister Eli Cohen who tried to limit the power and independence of the Bank of Israel.
Benjamin Netanyahu rejected Cohen's proposal, otherwise it could have hurt the rating.
The demand for government bonds is strong, but the reform of the judicial system, if carried out, could weaken Israel's credit and corporate governance - this would affect the confidence of investors.
In other countries where there was a weakening of corporate governance, the rating agency adds, there was a drop in the credit rating point. No It is clear if this happens in the case of Israel. In the fringes, the conflict with Iran can also have a negative effect. Other permanent risks are the background of the conflict with the Palestinians and Hezbollah, as well as conflicts with Arabs inside Israel itself. After those seeking Israel's harm spread that Fitch had issued a yellow card to Israel
, The credit rating company clarified in an unusual step, on Sunday - a weekend in the global business world - that this is not true. There was no warning to Israel set a pitch. What's more, the government made it clear that the independence of the Bank of Israel will be preserved.
Earlier Prof. Emanuel Trachtenberg said in an interview with Shalom Kitel on Channel 2 in Kol Yisrael on Saturday the 4th of the month that Israel received a warning.
The head of the Department of Economics at Tel Aviv University, Prof. Yossi Spiegel, also said similar things in Avery Gilad's program last Friday, a program in which I participated, even though I made it clear to him that he was wrong.
It turns out that politicos in the form of professors have not disappeared.
A demonstration in Tel Aviv against the reform.
It is doubtful whether the reform will have a real effect on the economy in Israel (Photo: Uri Sela)
It's a shame they talk from the gut.
Fitch's chief analyst, Cedric Seri, said that the "stable" forecast means that there is no intention to downgrade Israel's credit rating, they will not downgrade soon.
The official on behalf of Fitch also said that they are really not afraid, but the Israeli media hid this fact from you and highlighted the paragraph in which Fitch referred to the legal reform.
He also said, "Reform in the judicial system is not expected to have an immediate effect on the business environment in Israel. Historically, the government is pro-business, supports businesses, and we expect this to continue," as he said to the IDF airwaves. As for the strength of the shekel, or the devaluation of the shekel, he
said Sri because "this is not a disturbing occurrence from an economic point of view, but a return to the balance of power that existed before the corona virus.
The reform is not expected to have an immediate effect on the business environment in Israel."
I note that the export of services in 2022 was 86.2 billion, an increase of 12.24 billion dollars (according to seasonally adjusted data), which is an increase of 16.5%.
Israel exports services at a weekly rate of 1.66 billion dollars.
Yes - in a week.
The business services that Israel exports from this amount amount to 1.24 billion dollars per week.
We will tell you a secret, because in the end what determines mainly international credit rating is the repayment capacity of the economy.
Israel will also have a current account surplus this year of 3.6% of GDP - far more than the countries with an A rating that have a deficit.
Yes, a deficit, compared to Israel's surplus.
The net credit that Israel gives to the world is much more than other category A countries in the world.
This is a significant strength of Israel, states the rating agency.
Israel's foreign exchange balances, even though they decreased this year, provide the ability to pay for 12 months in the economy's current account, compared to only 3.1 months in the countries corresponding to Israel in a similar ranking. This is the strength of the Israeli economy.
We should also note that the Bank of Israel announced this week that Israel's foreign exchange reserves constitute 37.5% of GDP and stood at 192 billion dollars at the end of February. An interesting point: the private sector transferred 76 million dollars in February, the month of the anti-government protests, yes inward, into Israel.
*What is said in this review is absolutely not a recommendation for implementation, readers are encouraged to do so only through a qualified investment advisor and in accordance with their needs and considerations only.
Bank of Israel