Early elections: here we go again

ISRAEL - In Brief 20 Jun 2022 by Jonathan Katz

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Israel goes to elections for the fourth time in five years, following the announcement by PM Bennett Monday evening. Lapid (who was scheduled to rotate with Bennett) will become acting PM until a new coalition is formed following elections, most likely on October 25th. The present coalition had become increasingly fragile following the desertion of two of Bennett’s party members. In the short run, further political uncertainty is somewhat negative for markets, although Israel (unfortunately) has much experience with this scenario. The major downside is the lack of fiscal reforms and policy. Early elections will most likely not be translated into an expansionary fiscal policy (right now the budget is balanced in the last 12 months), quite the opposite: Public sector wage agreements will probably be delayed, as will the initiative to boost the minimum wage. Nevertheless, reforms will be delayed, such as the opening up of food imports as well as some public sector infrastructure projects. The cancellation of non-tradeable bonds will be implemented on the 1st of October, as this has already been approved. Assuming no coalition will be formed for quite some time following the elections, the lack of an approved 2023 budget will be restrictive for fiscal spending in early 2023. In short, any shekel weakness of bond price decline following this announcement is likely to be limited, and probably temporary for the most part.