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 But amid the economic uncertainty and political turmoil, there are
at least two silver linings, both of which could end up having a
positive impact on an export-driven economy.
The first is the rapidly weakening currency; the second is the
spending restraint that will come from the 2015 budget being
delayed.
The shekel, seen by many as over-valued for years and a headache for
the central bank, has lost 18 percent against the dollar and 7
percent against the euro since July, the result of slower growth and
rock-bottom interest rates.
This week alone it has lost 2.5 percent against the dollar, with the
fall of Prime Minister Benjamin Netanyahu's 20-month-old government
shaking investor confidence.
But major Israeli exporters, whether in the pharmaceuticals,
high-tech, chemicals or agriculture sectors, face the prospect of
prospect of regaining some competitiveness. Around 40 percent of
Israeli GDP is generated from exports.
"Continued depreciation will support a recovery in exports and in
the tradable sector as a whole," the Bank of Israel said last week
as it held interest rates steady at 0.25 percent.
Ayelet Nir, the chief economist at Yetzirot, an investment bank,
sees the currency weakness giving a lift to exports, even if she
worries that the political unrest will hold back needed economic
reforms and deter corporate investment.
And even if the currency's weakness is likely to push up inflation
as import costs rise, Kobi Feller of UBS Wealth Management Israel
says the impact is unlikely to be excessive.
In fact, given that prices fell 0.3 percent annually in November, a
little inflation would not be unwelcome to policymakers.
MIXED PICTURE
The other possible upside is that the 2015 budget, one of the causes
of the government collapse that lead to Finance Minister Yair Lapid
being fired, will not now be passed until the middle of next year at
the earliest.
Instead, the values from 2014 will be divided into 12 and paid out
each month. What that means is that spending will be forcibly
curtailed, keeping the budget deficit down.
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And Lapid's contested, 3 billion shekel ($750 million) proposal to
exempt young home buyers from the 18 percent value added tax will
now not go into effect, which economists say should be positive for
the housing sector and construction after many potential buyers sat
on the sidelines for months because of it.
Yet Israel's economic outlook is still not as rosy as it once was.
The economy is set to grow just 2.2 percent this year, down from an
initial forecast of 3 percent. Next year it is seen growing 3
percent again, below its long-run trend.
Economic reforms to encourage investment, break down cartels and
lower the cost of living have not been carried out. The country is
without a finance minister. And while a weaker currency is a help,
it is double-edged.
"Even if the depreciation of the shekel over the last few months had
a positive influence on the economy -- especially the export sector
-- it was too sharp," said forex broker FXCM.
"The freezing of reforms, lack of a finance minister and political
uncertainty that will characterize the next few months of the
election campaign will only increase pressure on the shekel and
scare away investors."
(Editing by Luke Baker/Jeremy Gaunt)
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