Yossi Schwartz ISL (RCIT section in Israel/Occupied Palestine), 18.08.2024
The international credit rating company Fitch lowered the credit rating of the Zionist state tonight from A+ to A with a negative outlook. Fitch joins the two agencies, Moody’s and S&P, when Fitch and Moody’s rate Israel similarly.
The downgrade means an increase in the cost of raising the Zionist government’s debt and deficit. As a result, the government will pay more interest on the debt, and this price will roll into the pockets of citizens, whether Israelis or Americans.
Lowering the credit rating directly affects the pockets of the popular classes. When the credit rating goes down, the state’s borrowing cost increases, increasing government spending on interest. As a result, the government may raise taxes or cut essential services such as education and welfare.
The ongoing war is causing widespread damage to the Israeli economy, with small and medium businesses mainly suffering from the situation. This is an unprecedented amount, leaving the economy in a negative balance between the number of businesses opening and those closing. It is expected that 80,000 businesses will be closed.
Inflation is racing: According to economists’ estimates, the consumer price index is expected to increase by 0.4% to 0.6%. The results are expected to indicate continued price increases, which “reflect the effect of the war on the cost of living.”
According to Ronan Menachem, Chief Economist of Bank Mizrahi-Tefahot, “The gradual climb of the rate of inflation in recent months is expected to increase, and this after it had already dropped to 2.5% earlier this year. Essential inflation (excluding food and energy) has been rising again recently. It should be noted that the prices of non-tradable services and products, which more closely reflect the demand in the economy, are still growing faster than the general index, which makes it challenging to lower inflation.
The price of housing section is very important – both because of its high weight in the index (about 26%) and also because, along with apartment prices, it has also changed direction and returned to rising in recent months. In any case, the expected index will not support an imminent interest rate cut. Which is also unlikely as long as the shekel is very volatile, the budget deficit is soaring, and the budget discussions for 2025 have not yet begun.”
Victor Behar, the director of the economic department at Bank Hapoalim, points out that an index of about 0.4% is expected today: “The increase in the state’s risk premium will not allow for an interest rate cut in September, and in general, the interest rate in Israel will not fall at the same rate as in the rest of the world. Next year, we will reach a situation where the interest rate in the US is lower than in Israel.”
Chen Herzog, BDO’s chief economist, adds that the price index is expected to indicate continued price increases, mainly due to increases in food, travel abroad, and housing prices: “The consumer price index is expected to reflect the effect of the war on the cost of living in Israel. The war imposes an increasing cost on consumers. Prominent factors in the rise of the index are, as mentioned, increases in the prices of fruits and vegetables, flights, and rent, which are affected by the lack of a government policy to deal with the economic challenges following the war. The index will not yet reflect the impact of Fitch’s recent rating downgrade, which is expected to lead to further price increases due to the rise in Israel’s risk premium.”
You can bet that Netanyahu and his gang do not feel the high cost of food and housing prices.
For Palestine, red and free from the river to the sea!