How will Trump's election affect the Israeli economy?
With a new Trump economic policy for the world's largest economy focusing primarily on lowering taxes and bringing jobs back to the US, how will this affect the world economy in general, and Israel's economy in particular?
Often, the world's stock markets react extremely to moments of uncertainty, as we saw after the Brexit vote, and Donald Trump's victory in the US presidential elections was no different, with markets across the world diving and rebounding the following day.
Ynet spoke to senior economists to see how they think Trump's election will affect the Israeli economy.
"It would take a while before the world can figure out what Trump's policies are, but it's safe to assume that in reality he will be much more level-headed than it seems," asserts Yaniv Hevron, the chief economist of the Excellence investment house.
"It would be best to ignore the reactions of the market in the coming days as much as possible, as the markets are simply worried by the uncertainty that Trump brings. But we have to remember that Trump does bring an economic policy with him in the form of lowering taxes, increasing disposable income and bringing jobs back to the US," he adds.
When it comes to foreign trade, the US accounts for about 26 percent of Israel's exports. According to Hevron, investors worldwide are mostly worried by Trump's plans to make the US a more closed economy, which he says is going to hurt the US's trading partners, especially in light of global trade slowing down in recent years.
Despite that, Hevron says he doesn't believe Israel will be greatly hurt by that.
Trump wants to increase interest rates
Hevron explains that President-elect Trump wants to increase interest rates. "Several times in the past, Trump has spoken against the US monetary policy, which is characterized by very low interest rates. While the administration cannot influence the Federal Reserve's decisions, Trump could choose a chairperson with views different of those of the current chairwoman. Trump claims that low interest rates inflate the asset bubble and he believes interest rates should have been raised a long time ago," he says.
According to the chief economist of the I.B.I Investment House, Rafi Gozlan, "At first, Trump's election brings high levels of uncertainty as we're not talking about an experienced politician, instead we have a campaign declarations that, if some of them do come to pass, could lead to a much worse global environment, including an increase in geo-political tensions. The comparisons to the referendum in Britain are natural because of the the polls' big failure, but this is where the comparison ends. Britain is not the United States. Recession in the UK is negligible on a global level. Bad policy in the US could send the entire world into recession."
Gozlan explains that the immediate and direct effect on the Israeli economy would be limited. The Israeli economy, as a small and open economy, will only suffer if there is a drop in world trade. But, as previously mentioned, these are not changes that are expected in the foreseeable future.
"The political uncertainty reduces the chance of changes in US interest rates, and even more so in Israel. In terms of the domestic stock markets, this is a relatively positive development, as most of the declines over the past year in the main stock indexes were the result of a drop in pharmaceutical stocks, which carry a significant weight in domestic indexes. Several of sectors, particularly the pharmaceutical, financial and energy markets, can now breathe easy because they would have been negatively affected had Clinton won."
Possible rise in defense costs
The chief economist of the investment house Meitav Dash, Alex Zabezhinsky, says "The Israeli economy, as an open economy that has a main part of its growth based on foreign trade, could suffer if globalization and foreign trade are hurt as a result of Donald Trump's declared policies. Exporters could also get hurt by the preference given to American companies in the American domestic market, and from the wave of protectionism that will increase in other countries."
Zabezhinsky also addressed the repercussions of the geopolitical changes expected in our region, which could increase security tensions. For example, a change in the new American administration's policy on the Middle East could lead to reducing support to friendly regimes and cancelling the nuclear agreement with Iran.
"In such a situation, Israel's economy could suffer from a rise in defense costs and from the uncertainty, despite the new president's declared support of Israel," Zabezhinsky says.
The CEO of Ashra (the Israel Foreign Trade Risks Insurance Corporation), Tzahi Malah, says "Trump's election is expected to lead to the weakening of the dollar compared to the shekel and other main currencies in the world in the short term, as a result of the uncertainty in the financial markets over the consequences of his election."
According to Malah, "The American economy, which is ranked by zero-risk credit ratings and constitutes a main trade partner and a main export destination for Israel, is not expected to face a great crisis over Trump's election. There is, however, going to be high volatility in the financial markets in the near term due to the ambiguousness concerning Trump's plans, but at this point, we're only expected to see a short-termed limited event, which doesn't necessarily indicate what's to come in the near-distant future. Evidence of that is the markets' reaction to Brexit, which was also temporary."
The pharmaceutical sector and the defense industries
Malah points to several sectors expected to benefit from Trump's election. "His victory strengthens the pharmaceutical sector as concerns over Clinton's planned drug prices reform have been lifted, which of course helps the Israeli pharmaceutical exporters. Israeli defense industries are also expected to benefit, due to a foreseen rise in defense budgets. Manufacturers of luxury products are expected to benefit from Trump's plans to lower taxes and limit the maximum tax rates, which will benefit those who purchase luxury items. Trump's election is also an opportunity for exporters in the heavy industry because of Trump's declaration that he would build a wall between the US and Mexico and invest in airports and roads.
"The financial sector is also expected to strengthen over concern that Trump would enact an aggressive fiscal policy that would lead to a rise in the deficit, which will be funded by bonds, so there's a forecast of return rates rising in the long term, which is very beneficial for the banking system."
