| Ofer Klein, Head of the Economics and Research Division at Harel Insurance and Finance
Key points in Harel’s weekly macroeconomic review:
In Israel:
- · In November it fell 0.1 percent, lower than earlier estimates. Inflation has risen slightly and will rise slightly next month. We estimate that over the next year the inflation rate will fall below the center of the inflation target (2 percent). This, along with the strength of the E, will allow the Bank of Israel a wide margin of maneuver.
- · The rate of increase in housing prices reached a double-digit level, with the sharp rise in construction input prices contributing to this. We expect a continued rise in housing prices in 2022, but at a more moderate pace.
- A growing surplus in the services account compensates for a deficit in the goods account and continues to support the strength of the shekel.
In the world:
The recent decisions of the central banks this week point to two main approaches. A more aggressive approach that argues that despite rising morbidity should start raising interest rates (especially English-speaking countries and emerging markets) and the Eurozone and China approach arguing that not only is there more time until the first interest rate rise but more expansive steps need to be taken. In our estimation, over the next year we will see an increase in interest rates in more and more places in the world. However, the uncertainty will make it difficult to raise interest rates quickly.
- The US Federal Reserve has accelerated the reduction in the rate and signaled that it may rise 3 times in 2022.
- · Despite the spike in morbidity, the Bank of England surprisingly raised earlier than expected (0.25%) in light of high inflation (5.1%).
- · Additional interest rate increases were recorded in (0.5%), in (2.4%) and (8.5%), due to high inflation.
- · On the other hand, the central bank has signaled that the interest rate will probably not rise until 2022, and will increase the rate of purchases next year.
- · The central bank also continued with a more expansionary policy when it reduced the interest rate for the year, in view of the slowdown in domestic demand.
Against the background of the recent decisions of the central banks in the world, we expect that the country will not rise at least until the last quarter of 2022, even when we see a rise in interest rates in the US.
The recent decisions of the central banks this week point to two main approaches. A more hawkish approach that argues that despite rising morbidity should start raising interest rates (especially English-speaking countries and emerging markets) and the approach of the eurozone and China arguing that not only is there more time until the first interest rate rise but more expansive steps need to be taken. In our estimation, over the next year we will see an increase in interest rates in more and more places in the world. However the uncertainty will make it difficult to raise interest rates quickly.
On the other hand, in Israel, relatively low inflation along with the strength of the shekel will allow the Bank of Israel a wide margin of maneuver.
The consumer price index for November fell 0.1 percent, slightly lower than earlier estimates. The sharp rise in the price of fuel and the high levy on disposable dishes (29%) were offset by a higher-than-expected decline in fresh-fruit-vegetable prices (minus 5.8%, with an emphasis on tomatoes and avocados) and a further decline in holiday and excursion prices (minus 10%). Inflation over the last 12 months has risen slightly to 2.4 percent and will rise slightly more next month (2.5%).
But in our estimation, over the next year the rate of inflation has fallen below the center of the inflation target (2 per cent). This, along with the strength of the shekel, will allow the Bank of Israel a wide margin of maneuver. We anticipate that interest rates in the country will not rise at least until the last quarter of 2022 even when we see a rise in US interest rates.
| Approve faster, but build apartments more slowly
We expect a continued rise in housing prices in 2022 as well, but at a more moderate pace. The housing price index rose by 0.9 percent (between mid-September and mid-October) and cumulatively by 10.3 percent in the last 12 months. The sharp rise in construction input prices (0.5 percent in October and 5.8 percent in the last 12 months) also contributed to rising apartment prices.
We expect a continued rise in housing prices in 2022, but at a more moderate pace. On the supply side of the apartments, preliminary data for building permits show an increase in the pace of planning, but continued construction rate constraints some before the crisis (shortage of skilled workers) and some added following the corona (industrial and shipping bottlenecks) delay the actual growth rate. On the demand side the low interest rates continue to support, but less compared to the last year and a half in light of the upward update of the purchase tax for investors and the expectation of global interest rate hikes.
The surplus in services still beats the deficit in commodities and supports the strength of the shekel in the long run: The current account surplus was $ 5.3 billion in the third quarter (according to seasonally adjusted data), about 5 percent of GDP in the last four quarters. A surplus of about $ 10 billion in the services account compensates for a deficit of about $ 6 billion in the goods account. According to preliminary data, this trend continued in the current quarter, which supports the structural factors that strengthen the shekel.
This is in addition to the continued increase in foreign direct investment (FDI) which stood at $ 5.4 billion in the third quarter.
Review A full macroeconomic macro of Harel Insurance and Finance economists
The author is the head of the Economics and Research Division at Harel Insurance and Finance. The author (s) and / or members of the Harel Group and / or interested parties in them and / or the controlling shareholders of the Group, may hold and / or trade, for themselves and / or for others, the securities and financial assets specified in this review. This review should not be construed as investment marketing or an alternative to investment marketing, which takes into account the personal and special needs of each investor. What is stated in this review reflects the opinion of the author at the time of publication, and this may change at any time and without further notice. The Company will not be liable, in any form, for any damage and / or loss caused, if any, as a result of relying on this review, nor does it warrant that relying on the information contained therein may yield profits.