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Modi Shafrir, chief strategist at Bank Hapoalim

Bank Hapoalim's chief strategist is optimistic about Israeli high-tech

Modi Shafrir provides an economic forecast and shares the implications of the war on Israeli industry in general and the tech industry in particular, emphasizing: "In the cautiously optimistic scenario, in the near future, it will be difficult, but in the end, it will be fine"

Lior Avisar
"The war will have a significant impact, especially in the fourth quarter, which will probably have consequences afterward, and an increase in the budget deficit due to the sharp increase in expenditures and the decline in revenues," said Modi Shafrir, chief strategist at Bank Hapoalim. "It is difficult to predict the extent of the damage and the deficit in numbers, but it is clear that it will be in the tens of billions. But in proportion, in Israel, every NIS 18 billion is a percentage of the GDP, so even a deficit of NIS 100 billion is 5.5 percent, it's not a disaster."
This is the dominant tone throughout the conversation with Moti – a clear look at the numbers and financial implications, accompanied by cautious optimism.
"You can see positively that at the beginning of the war, there was a halt in private consumption, and already, after two weeks, activity began to return to only slightly below normal. Of course, not in the north and the south, but many industries are seeing a recovery. In the financial markets as well, there was a sharp decline in the prices of stocks and bonds, but we can now see that the shekel is recovering. It is now trading at a low level of 3.74, compared to the level three weeks ago (4.08). The debt market is also recovering because we expect an imminent interest rate cut."
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Modi Shafrir, chief strategist at Bank Hapoalim
Modi Shafrir, chief strategist at Bank Hapoalim
Modi Shafrir, chief strategist at Bank Hapoalim
(Inbal Marmari)
How could everything recover so quickly?
"The Bank of Israel sold a very large barrage—over $8 billion. In doing so, he moderated the pressures of the weakening and supported the strengthening of the Shekel. In addition, the Nasdaq has risen by 11% since the beginning of November, and usually, when the Nasdaq rises, the shekel strengthens.
The direct connection to the war is that at first, there was concern in the world of a significant multi-regional war, which also led to a significant jump in oil prices, and now there is calm in this respect - the world doesn't see it as a multi-system war.
At the level of domestic Israeli politics, the Israeli shekel weakened even before the war because of the changes in the Judicial system. Today, it seems that the market is pricing in the fact that at the end of the war, the changes in the Judicial system will be off the agenda, which strengthens the shekel and moderates inflationary pressures, which will enable an interest rate cut in the beginning of 2024. It is important to say that certainly, if, on the other hand, we are going to a more significant escalation in the north or an expansion of the fighting in Gaza to the first quarter of 2024 as well, then we will see a much sharper damage in fiscal terms and to economic activity.
Insignificant impact on high-tech
What is the impact on the high-tech industry?
"At the moment, the tech industry is negatively affected, of course, mainly by manpower shortages, but relatively less than other industries in the economy. In general, Tech companies are less affected than other industries because in high-tech, from the outset, productivity is much higher, and there is remote work. According to a survey conducted by the Israeli Central Bureau of Statistics (CBS) on November 20th, the percentage of businesses anticipating a severe impact (more than 50%) on their November revenues in the high-tech sectors (9%) is significantly lower than that in other economic sectors. Looking ahead, I don't think there will be a very significant impact. All this, of course, depends on the scenarios that will take place – if the internal rift among the people reaches the point of mending together, if a new government is formed, or if the legal reform is off the agenda. All of these can actually increase the optimism of the tech industry here and of foreign investment."
Is there really an improvement in terms of consumption?
"It's clear that the citizens of Israel have less desire to go out and consume, but we all know that it's important at the level of national resilience, to strengthen restaurants, small businesses, and to drive the economy. Part of Israel's resilience is economic, not just security. Part of our victory in the war is to show that the economy continues to function, especially in light of the fact that there are so many people in the reserves."
So, all in all, are you optimistic?
"Right now, it's hard. But after that will be better. The Israeli economy is robust. Assuming that things work out internally in Israel as well, among ourselves, there is a basis for great optimism in the coming years."