​Israel goes to the polls for the fourth time in two years​

ISRAEL - In Brief 23 Dec 2020 by Jonathan Katz

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Israel goes to the polls for the fourth time in two yearsThe Israeli Parliament will disperse, and elections are expected on March 23rd. This is the fourth time in two years, a sign of political instability. Nevertheless, we do not think this is necessarily a negative development this time around. The present unity coalition was barely functioning, and there was great animosity and suspicion between the Blue and White and the Likud parties. No progress was made towards reforms, and the handling of the Covid crisis was rather faulty. New elections raise the possibility of a more stable and functioning government following elections. On the fiscal side, the 2021 temporary budget will be provided with an additional 50bn ILS for the Covid crisis and 20bn for other expenditures. We doubt that early elections will lead to a negative outlook downgrade by the rating agencies (although this cannot be ruled out). Israel has weathered the Covid storm relatively well: GDP contraction is expected to be relatively low (we think -3.5% this year), the CA surplus has improved to over 6% GDP in Q320, and in the geopolitical sphere, several Arab nations (Morocco the latest one) have normalized relations with Israel. The fiscal deficit this year is expected to reach 12% or slightly below, and the debt/GDP approximately 72%. The additional direct fiscal cost for elections is estimated at 1bn ILS, an added fiscal stimulus which we think is positive in a depressed economy. Yesterday the shekel strengthened by 0.2% against the basket (despite large BoI intervention, according to the press), and 10-year bond yields declined sharply: clear signals that markets are not really phased by another r...