Economy had Israel Blow after operation Al-Aqsa flood launched by the Palestinian resistance on October 7 of last year, especially amid the ongoing uncertainty regarding the duration of the war waged by Israel, according to the Swiss bank UBS.
Analysts from the bank wrote in a survey that in the immediate aftermath of the events of October 7, a cut was expected Credit rating for Israel at a rate of 2 to 3 (which has largely been achieved since then with the two most recent downgrades: credit rating downgrades by the Moody's); This process was accompanied by weak performance of local currency bonds, which led to raising the gap between their yield and the yield of 10-year US Treasury bonds to levels not seen since 2013, according to the Israeli economic newspaper Globes.
As for the shekel, it was stable after a short-term selling wave, but it largely maintained its declining level after the months preceding the war, during which the focus was on the judicial amendments that the Prime Minister wanted. Benjamin Netanyahu It met with widespread opposition, according to the newspaper.
It is noteworthy that the study was written before Iran’s recent attack on Israel last week, and therefore it does not take into account escalation in the form of a direct conflict between Iran and Israel.
3 scenarios
The bank is considering three scenarios in the period between the next 6 to 12 months. The first scenario is a ceasefire on all fronts, the second scenario is a decline in the intensity of the war, and the third is an expansion and extension of the war on the Lebanese front, according to the study that expected the war to end at the end of 2025. And to the expectations:
- Stop the warUBS believes that the value of the shekel will rise to a level between 3.40 and 3.50 shekels per dollar (the level when studied is 3.72 shekels per dollar), and the bank believes that this will be driven by unleashing demand for the shekel through local and international hedging.
- The intensity of the war decreasedThe value of the shekel is likely to improve, but to a much lesser extent, and the exchange rate may range between 3.60 and 3.70 shekels to the dollar.
- The war escalates: With the continued rise in the financial risk premium and additional credit rating downgrades, which are compensated for by the possible intervention of the Bank of Israel – according to the study – the shekel may decline to a level between 3.80 and 3.90 shekels to the dollar.
Financial deficit
- Stopping the war or reducing its intensity: Analysts expect the 12-month deficit to be about to peak, but will still be higher than official expectations for this year (6.6% of GDP).
There are also risks that the deficit target of 4% of GDP may be achieved next year. - In all three scenarios, defense spending is likely to rise structurally (by 1% to 2% of GDP), the report says.
UBS notes that when the geopolitical situation improves, investors will likely want to return to normal hedging levels, and in order to do so they could sell large amounts of dollars (up to $15 billion), which would support the appreciation of the shekel. .
There is a possibility that the Bank of Israel will intervene to stabilize the market in the event of a shock, after a previous intervention worth $30 billion following the start of the war.