The Israeli economy is the only bright spot among developed countries in 2022
That had never happened before, the euro has been trading below 3.4 shekalim in the last few days, the pound sterling is trading below 4 shekalim. Four main elements explain the fact that the shekel has become a “safe haven” currency.
First, as the OECD and IMF have repeatedly stressed, the Israeli economy is the only bright spot among developed countries in 2022. For example, since the beginning of 2022 there is a budget surplus of 34 billion and therefore Israel is deleveraging, while the opposite is true in most countries, notably France where the debt reaches almost 120% of the gross national product. . In addition, Israel is running a surplus in the balance of payments, thanks in particular to its prominent position in the world’s high-tech and gas fields.
Then central banks started raising interest rates to fight inflation. In Israel, inflation is around 4%, half that of the United States and the average for European countries. The real interest rates (deducted from inflation) that an investor receives for the shekel (around -2%) are much higher than those for the dollar (-5%) and even more for the euro (-7% on average over the European countries). .) In addition, Israel’s financial health allows the Bank of Israel’s director to adopt even more restrictive monetary policy without risking the risk of a recession, while in the United States, for example, we are already seeing the first signs of a slowdown in monetary policy.
In addition, global tensions and climate change, such as the war in Ukraine, the China-Taiwan conflict and the drought, will severely affect the world economy, while Israel appears to be much better protected from these problems. The last operation “Aurore” undoubtedly eliminated even the strategic threats to the gas fields and, moreover, to all economic infrastructures, which could be badly damaged by a military conflict with the still hostile forces.
After all, the shekel is closely linked to the performance of the American stock exchanges. In fact, Israeli institutional investors managing medium- and long-term savings invest a significant portion of these funds in the Dow Jones, the s and p (the 500 largest American companies) and the Nasdaq (technology exchange). When these markets fall sharply, they are forced to buy dollars to protect themselves, as has happened in recent months, causing the shekel to fall. However, as we have shown above, analysts believe prices will rise in the second half of the year and the same institutional investors are selling the dollar to buy the shekel.
In fact, it cannot be ruled out that the euro will trade around the 3 shekalim in the coming months.