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Global Economy
• The world order since the end of World War II is being tested. Nationalist and separatist voices undermine political and economic stability
• For the first time since the crisis of 2008, liquidity in the markets has been reduced as a result of the monetary tightening of the Central Banks
• Global growth is expected to slow, with variation between the countries and general entities
• Despite the ongoing improvement in the labor markets, inflation is not rising as a result of technological improvements, aging of the population and the burden of debt
• The longest bull market in history came to an end. Inadequate pricing of risks and loss of liquidity lead to a violent reaction in the markets, and may even lead to a retreat of the central banks from the monetary tightening path
• The first quarter of the year is expected to be particularly volatile in the context of the attempt to reach a settlement of the trade agreements between the US and China by the end of March, which is also the target date for implementing the Brexit or a repeat referendum
United States
• For the first time in 70 years, the US has become a net exporter of oil, with a daily oil production rate exceeding that of Saudi Arabia and Russia, which has implications for the USled isolationist line, OPEC and Russia
• The economic recovery is expected to moderate against the background of the monetary tightening, the exhaustion of the effect of fiscal expansion and economic uncertainty, which may affect households and businesses
• The labor market is in full employment. The increasing difficulty in recruiting skilled workers is expected to lead to wage pressures and damages to companies’ profits
• Slowdown in the real estate market combined to the decline in the markets are responsible for harming the “wealth effect” as reflected in private consumption
• Doubts are growing regarding the Fed’s ability to continue raising interest rates. The continued decline in the markets in parallel with the reversal of the yield curve of bond yields could bring the Fed under extreme conditions to stop the monetary tightening and even return to an expansionary policy
Eurozone
• Angela Merkel’s resignation and the decline of the moderate leaders created a leadership vacuum for the separatist and populist parties that are leading a nationalist line that undermines the united foundations upon which the Eurozone relies
• There is a slowdown in the economic growth of Eurozone countries, in the context of a dangerous combination of decline in liquidity and war trade, with heavy consequences for the Eurozone which is export-oriented
• Despite the improvement in labor markets and wage pressures, inflation is not rising
• Fears of a credit event in the European banking system are raising, as the latest failed to take advantage of the high economic activity and liquidity
• Despite Draghi’s determination to return to normalization, the background conditions will make it difficult for him to raise the interest rate in 2019 and he will probably be required to renew the long-term loans program for banks with reduced interest rates (LTRO)
Israel
• After years of Israel’s economy success, cracks have broken in the macro picture
• A slowdown in economic growth is evident as a result of the ongoing erosion of the competitiveness of Israeli exports, the slowdown in global trade and the exhaustion of growth potential, which is based on private consumption
• The contraction of the surplus in the balance of payments continued
• After six years of fiscal discipline in Israel, there was a significant increase in the budget deficit to 3.6% of GDP. The fact that it is election year in Israel does not allow the outgoing government to make the necessary adjustments in order to meet the deficit targets
• The political uncertainty coupled with the security tensions provide a “tailwind” for the devaluation of the shekel
• In his first speech as Chairman of the Bank of Israel, Prof. Amir Yaron, said that he intends to maintain the current policy
• The interest-rate differential between the dollar and the shekel has recently narrowed, but remains large enough to affect the investment patterns of the institutional investors and households
