In a comprehensive report recently presented to the Knesset, Israel's Finance Minister Bezalel Smotrich provided a generally upbeat evaluation of Israel's economic situation, even in the face of fluctuating global economic conditions. However, he also conceded that the current inflation rates have not retreated as much as earlier projections had indicated.
Smotrich asserted in the report: "Israel's economic markers are fundamentally robust. It is indeed a cause for gratitude to note that our national economy remains a pillar of stability, even as we navigate through uncertain global economic waters." The Finance Minister accentuated Israel's resilient economic infrastructure, specifying that "our growth rate is notably high, and the labor market is thriving."
Despite this, Smotrich was transparent about certain inaccuracies in previous inflation forecasts. He admitted, "Though our inflation rate is comparatively lower than what we observe globally, it hasn't aligned with the optimistic scenarios we had envisioned during the state budget formulation." Delving into the specifics, the Finance Ministry had initially forecasted a 3.9% average inflation rate for 2023. This was later adjusted to 4.2% when the budget was officially approved in May, and is currently expected to inch up to 4.3% by year-end.
Shifting his attention to the depreciation of the Israeli Shekel against the U.S. Dollar, which stood at NIS 3.81 per dollar most recently compared to NIS 3.45 and NIS 3.60 at earlier points this year, Smotrich sounded a note of caution. "This depreciation of the Shekel has the potential to magnify the reverberations of global inflation on our domestic market, especially with regard to imported goods," he stated explicitly.
Israel's currency, the new Israeli shekel, suffered the most since the COVID-19 pandemic, tanking to a 4.73% decrease against the US dollar, according to new research.#Israel | #COVID19 | #economics https://t.co/tGl8dpSBqe
ā The Jerusalem Post (@Jerusalem_Post) August 27, 2023
In a particularly compelling aspect of the report, Smotrich attributed part of the blame for the economy's underperformance to widespread protests aimed at judicial reform. "Certain orchestrated campaigns are casting a shadow over the intrinsic strengths of the Israeli economy. These are driven by parties with clear political agendas against the incumbent right-wing government and its significant proposed changes to the judicial system," he remarked.
Going a step further, he accused these factions of leveraging sizable financial resources and disproportionate media backing to spread falsehoods that threaten Israel's economic integrity. "Their impact has been, to date, relatively insignificant," Smotrich said, "The market is more astute than these provocateurs assume. It understands that Israel's economic policies are formulated with expertise, executed with consistency, and managed with responsibility."
Tricky decision for #Israel's central bank today. Does it opt to hold rates to support the economy and with #inflation having slowed? Or does it hike to follow the Fed and help the #shekel, which is now at a three-year low? https://t.co/mnHwZb1zqt
ā Paul Wallace (@PaulWallace123) September 4, 2023
In alignment with this perspective, the Bank of Israel has opted to keep the benchmark interest rate stable at 4.75% for the second consecutive month. Nonetheless, the central bank is bracing for possible interest rate hikes in the near future, citing persistent inflation and a weakening Shekel.
To add further nuance to this multifaceted economic narrative, Fitch Ratings upheld Israel's A+ sovereign credit rating recently but flagged potential concerns. The rating agency noted that Israel's planned judicial reforms could potentially erode the country's creditworthiness, cautioning that it might result in a "decline in Israel's institutional robustness," with subsequent adverse effects on key macroeconomic and fiscal indicators.
Smotrich is equally to blame for the continued mess in Israel as anyone. His inability to read and act on the glaring holes in the future of Israeli economy is frightening. Investments are pouring out and Smotrich won't bat an eye @cherribi https://t.co/0Rx72NyZkW
ā sinclair (@sinclair_econ) September 5, 2023
In summation, Israel's economy exhibits remarkable resilience amidst an unstable global economic environment, yet it is not impervious to a variety of both internal and external pressures. The insights offered by both the Finance Minister and external credit rating agencies contribute to a complex picture that underscores the myriad factors, from inflation to political discord, shaping the future of Israel's economy.
