After a strong week, the shekel is again testing pre-coronavirus levels. A resurgent outbreak could change all that.
With cases surging, the Israeli government last week mandated new restrictions including the shuttering of shops and beaches on weekends in order to stem the rise. Weekend closures will each cost the economy 1.8 billion shekels ($524 million), and it could contract as much as 9% this year, central bank Governor Amir Yaron said in an interview late Saturday with Kan television.
The new restrictions and the government’s recent expansions of crisis aid increase the chances of a credit rating downgrade that could weaken the shekel, according to Alex Zabezhinsky, chief economist for Meitav Dash Investments Ltd. The currency has been a top global performer over the past couple of years, fueled by foreign investors, but a drop in Israel’s credit rating could damp their ardor.
“Israel’s financial risk rose due to the deteriorating economic situation and the way that the crisis is being managed, increasing the chances the shekel will stop being attractive to foreign investors,” Zabezhinsky wrote in a note to clients on Sunday.
The currency was one of the world’s top performers last week, gaining 0.8% to trade 3.4321 against the dollar.
He expects gross domestic product to contract 7% this year, with the budget deficit rising to 15% of output.
In a cabinet meeting on Sunday, Yaron warned that Israel can’t build up an unlimited deficit and must preserve its ammunition in case the outbreak worsens later this year. It was his most cautionary comment on the budget gap in months.
– Bloomberg.