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The reform is not to blame: high technology dragged the economy to the bottom - voila! Of money

2023-04-21T03:40:49.351Z


The weak indicators of the economy originate from the high-tech crisis that began long before the inauguration of the current government. What is the connection between the decrease in investments in the industry and the decrease in real estate prices and the decrease in tax revenues?


Demonstrations of high-tech workers in Tel Aviv.

Their troubles are not related to the reform but to the state of the world's capital markets (Photo: Yanon Shalom Yathach)

In the last quarter of 2022, there was a collapse at an annual rate of 27% in investments in the equipment of the information technology industries, known internationally as ICT, the acronym for Information and Communication Technology.

Of course, this refers to investments mainly in the high-tech industries, which plunged against the background of the collapse of the share prices of technology companies in the US, at a rate of about a third of their value during the year 2022, as expressed in the Nasdaq stock index.



This decrease in investments in Israel in the field of technology in the last quarter of 2022 and the fall in share prices in the industry, which previously served as a tremendous source of cheap money as a result of exits and high wages, has nothing to do with the establishment of the government at the beginning of the year or the legislation in the legal field, which divides the hawkish nations in Israel.



The fall began before that because of the natural business cycle in the American high-tech industry, a natural business cycle like in other industries throughout hundreds of years of economic history, such as the real estate bubble that is losing height right now all over the world, including in Israel.



The decline in investments in the ICT sectors began already in the first quarter of 2022 with a decrease in an annual rate of about 8%, after which stability was demonstrated in the second and third quarters of 2022 - and then came the aforementioned crash in the last quarter of the year.

In order to clarify the magnitude of the fall, we note that in the last quarter of 2021, a year earlier, the peak of the high-tech industry was recorded, when investments in ICT increased at an annual rate of 45%, after an increase of 23% in the third quarter of 2021.

A performance by high-tech workers, Sharona.

The fact is that no start-up is closed because of the legal legislation (photo: official website, no)

Resonance in real estate

The housing market reacted quickly to changes in the income of the apartment buyers and housing developers in Israel's high-tech capital, Tel Aviv.

Not only did the exits almost disappear as if they were not there, but there was also a fear of continued salary flow at the higher levels.

In other words, the security of a high future income stream has been undermined.



In just three months, apartment prices in Israel's high-tech capital fell by 1.4%, which is a drop in an annual rate of over 5.7%!

Only in the last reported month, January-February, compared to December-January, there was a 0.5% decrease in apartment prices in Tel Aviv, after a 0.3% decrease a month earlier.



For comparison, in the central region (which does not include Tel Aviv) apartment prices actually increased in the three months preceding January-February this year at a rate of 1.72%, in the north they increased by 2.94%, in Jerusalem they increased by 0.64% - and only the south "joined" the rate Spring with a decrease of 1.5% during the said three months.

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Real estate in Tel Aviv. A crazy rise followed by a painful fall (Photo: Reuven Castro)

Inflation is still here and big

Inflation in Israel continues to gallop and in the last year was 5%, far beyond the inflation target that the government dictated to the Bank of Israel which is not meeting that, at the moment, inflation 1%-3%.

It is true that a decrease in the prices of import products is recognized, mainly due to the collapse of sea transportation prices (for example, a sharp retreat in the prices of transportation from China to the Mediterranean basin since the beginning of January at a rate of 28%, resulted in a decrease in the prices of furniture, cabinets, sofas, armchairs, large electrical equipment and electrical equipment for the kitchen ).



But on the other hand, the hand of the current government (like its predecessors), in the field of exposing the local market to competing imports, is still there.

The last three governments promised to do in the field of exposure to competing imports, so far without success, due to the strength of the interested lobbyists.



Until European standards are recognized in Israel and allow real import competition, including in the food and personal care products sector, the inflation here will force the Bank of Israel to continue raising interest rates, in order to suppress the rise in prices and also in order not to lag behind the American Fed, otherwise interest rate differentials will lead to the depreciation of the Shekel, which is itself inflationary engine.

There is here for the buyer that there might have been a place to fix it by selling foreign exchange through the Bank of Israel to the extent of the state's income from foreign exchange from any source.



While foreign exchange trading is free, the exchange rate is set between buyers and sellers around the clock all over the world (except on the weekend in New York), this is not the case with the government's foreign exchange or its trust units, perhaps only the security export.



The Bank of Israel is the banker of the Israeli government, therefore the sale of foreign currency by the Israeli government, or the raising of capital in foreign currency abroad, do not affect the exchange rate towards the appreciation of the shekel. The rate is determined according to the representative rate on that day, and has zero effect on the market the foreign exchange.

This is in contrast to the sale of foreign currency by commercial exporters, which leads to an appreciation or purchase of foreign currency that reduces the exchange rate of the shekel.

Governor of the Bank of Israel, Prof. Amir Yaron.

will continue to raise the interest rate until annual inflation reaches around 2% (Photo: Flash 90, Flash 90)

The interest rate will rise

Naturally, if the shekel weakens, the prices of importing medicines from Europe become more expensive, vehicles from Southeast Asia become more expensive, and energy prices rise, even when the price of oil does not rise (actually there is an increase in oil prices in the world due to the production cut by the countries associated with "OPEC+" )



Another important point is the percolation of the price increases into the service industries in Israel, which naturally have no competition from imports, such as education at all levels - from elementary to university and professional training, medical services, financial services, law firm services including drafting contracts, driving lessons, salary The Amir apartment, which adjusts itself to the price of capital, meaning the high interest rate in the money market and bond yields.



This means that the Bank of Israel will be forced to continue raising the interest rate, which currently stands at 4.75%, towards at least 5.25%, that is, the prime interest rate, which stands at 6%, will rise towards at least 6.5%, according to my estimation.

The interest rate will remain at a high level over a period of time, because there is no hocus pocus in the field of inflation.

The decrease in the annual inflation rate will be gradual, the Bank of Israel will not reduce the interest rate even in 2024, until it is certain that inflation has converged below the middle of the inflation target, 2%.



The combination of an increase in interest rates together with a decrease in the public's sense of wealth, from the high-tech to simple employees whose wages have actually eroded, will result in the continued decline in apartment prices, a decline that has just been assimilated into public opinion.

A higher interest rate also means difficulties for contractors who bet on a continued rise in the prices of new apartments and purchased land at exorbitant prices.

It is difficult to see where the financing will come from to pay the interest for the land that has already been purchased, to continue construction, not to mention the profit potential that will be eroded.



The result will be the realization of assets to pay the bank debts, and realization leads to a decrease in prices.

A higher interest rate also makes it difficult for the performance contractors who have signed contracts, if they do not have clear linking clauses to the construction input index which, although relatively relaxed, is still kicking.

This is even before wage increases for the workers in the industry, which are suppressed for now.

The relative advantage now goes to TAMA and Pinoy Binui contractors, where there are no burdensome obligations on the purchase of land that is in place and an integral part of the deal, therefore the interest rate is less influential. It is true that the prices of apartments



in the general market have risen in the last three months at a minimal annual rate of 0.42%, while the prices of apartments The news decreased in the last three months at an annual rate of 4.3%. In fact, apartment prices in the new apartment market have been decreasing for five consecutive months starting from September-October last year, when the fall in the high-tech market began, a five-month cumulative decrease of 1.9%.



The rate of increase in the prices of new apartments, including apartments with government support, such as the price per resident, decreased from an annual rate of 27% per year for the month of August/September 2022 to an annual rate of 11.7%, as of the last reported month January-February 2023. This is a clear crash of the apartment price bubble.

end of period



We will also note that the share of apartments subsidized by the government in all new apartments was about 22% in the last year, since there were no additional discounts on the prices of apartments with government support.

That is, it is possible that the drop in the prices of new apartments in the free market, which does not benefit from the government subsidy, was even higher than indicated above.

Smotrich and Netanyahu.

The Prime Minister and his Minister of Finance should not be too excited about the lowering of the rating forecast (Photo: Flash 90, Yonatan Zindel)

The legislation is not related to the high-tech crisis

The state also loses: the heavy interest rate and the need to dedicate more and more money and capital every month to paying the mortgage, mainly due to an increase in the cost of prime interest, together with the sharp increase in the cost of living, is also reflected in a decrease in private consumption, which leads to a decrease in the state's net VAT revenues in the first quarter of this year at a real rate of 13.5% compared to the corresponding quarter last year.



Income tax revenues from self-employed persons and companies decreased in the first quarter of the year by 10% compared to the corresponding quarter last year, the income from deductions from lessors at source, including from the capital market, saw a decrease of 7% compared to the corresponding quarter last year, this Includes the decrease in state revenues from the exercise of employee options, which mainly characterize employees in the high-tech market.



The state's revenues were damaged by the bursting of the real estate bubble: fewer transactions mean less revenue for the government, which has benefited from speculative revenues in the real estate bubble in recent years, both from the increase in the value of the land on which the government has settled and from the panic for apartments that has characterized the economy since 2008. The net revenue from real estate taxation in March of this year was NIS 1.5 billion , a real drop of 43%!

compared to the same month last year.



The collection from the appreciation tax also decreased by a real rate of 43%, the decrease in the collection of purchase tax decreased by a similar rate compared to March 2022. Please note, the government's income from real estate increased from the middle of 2021 to the first part of 2022, inclusive, that is, as long as the high-tech was in full force.

Since then they have been on a downward trend, meaning that the trend really fits in with the beginning of the high-tech crisis that began in mid-2022.



The retreat of high-tech, which also causes a retreat in the real estate industry, leads to a decline through the economic multiplier for the other industries. It will slow the edge of growth this year to 2.6% this year after an increase of 6.5% in 2022 and another 3.5% in 2024, according to the credit rating company Moody's. which was full of praise for the Israeli economy and its own, despite a sort of weak warning about the quality of Israel's three authorities.



This slowdown overall brought the outlook for the credit rating to the level of "stable" as opposed to "positive". Why "on the whole"? Because under pressure from unprofessional media doing their job badly and the economic discourse, all of a sudden became experts in the field of foreign exchange, which is one of the most difficult industries to predict the future and analyze.

Perhaps everything can explain the decrease in watching the news on TV channels.

The report does not point a finger of blame towards the impact of the legislative process on the high-tech industry.

  • Of money

Tags

  • High tech

  • real estate

  • Moody's

Source: walla

All business articles on 2023-04-21

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