Alex Zabrzynski, the chief economist of Meitav Dash, today publishes a forecast for 2021 in Israel and around the world, and says that by the time the vaccine is released, growth in the global economy is expected to be weak and even shrinking. Of households.
In the global market, says Zabrzynski, the recovery from the crisis that erupted in the spring has been surprisingly strong, and the pessimistic growth forecasts of international bodies published in the early stages of the crisis have been significantly updated recently.
There are two main reasons for the rapid recovery. First, it usually takes a long time to “recover” from the crises whose cause is economic-financial. In contrast, recovery from an external shock such as a natural disaster such as the earthquake in Japan in 2011, the earthquake and tsunami in Asia in 2004, a war (Second Lebanon War in Israel) or an epidemic (SARS in China) was generally rapid and powerful. The second reason is that the authorities’ treatment of the plague damage on the economic side has been very successful so far. Providing incentives on an unprecedented scale prevented most of the temporary damages from becoming permanent.
Growth in the global economy next year is expected to be strong, but only after the vaccine enters widespread use. It is difficult to expect that the authorities will be able to resort again to tight and prolonged closures as were done in the spring months, and without them the health situation will make it difficult for the economy to recover. Assuming the health solution removes most of the constraints in developed countries during the second quarter, there is another half year of low and perhaps even negative growth. This period requires fiscal and monetary incentives large enough for the economy to recover later.
The infrastructure for a strong recovery after the removal of medical risk next year lies in the fact that real consumer expenditure in OECD countries fell in the first half of the year by about 12%, while real disposable income actually rose by an exceptional rate of about 5%.
In the US it can be seen that government transfers to the public, the Fed balance sheet and the volume of public deposits in banks have risen at the same time almost by the same amount. Of U.S. Households – The ratio of debt to financial wealth and disposable income has dropped to its lowest levels since the early 1990s.
These conditions, which did not exist after the crisis in 2008, have already led to a rapid release of the occupied demand after the removal of health restrictions in recent months. Apparently, retail sales in the US and Europe already in the summer months returned to levels that were in February and overtook them, compared to the period of about 3 years that required recovery after the crisis more than a decade ago in the US and even more so in Europe.
High unemployment is not expected to be a significant obstacle to an increase in consumption in the coming year. Most of the workers affected by the crisis are low paid. The sharpest decline in jobs in the American economy was in very specific industries that were more affected by the crisis (leisure services, etc.). Most of these jobs are expected to recover quickly after the vaccine is distributed. In other industries, the decline in jobs was much lower than after the 2008 crisis.
However, unemployment, in Zabrzynski’s estimation, will not soon return to pre-crisis levels. As after any crisis, companies will also take advantage of the current one to become more efficient, which this time will be even deeper than usual due to a leap forward in the implementation of the technology.
Fiscal expansions are not expected to stop at the end of the crisis. The International Monetary Fund predicts that in most countries the deficits in 2022-2025 will be significantly higher than in the last decade. What could hinder the current system of working is inflation, which will prevent central banks from being able to support the expansionary monetary and fiscal policy. In our view, a combination of circumstances on the demand and supply side may support an increase in world inflation after the removal of health restrictions.
In Israel, Zabzinski explains, there were certain advantages in the current crisis. Among other things, the share of tourism in Israeli GDP is among the lowest among Western countries, and the share of trade, accommodation, food and transportation services, which were hit the hardest, is significantly lower than in the United States and Europe.
Apparently, the Israeli economy coped well with the crisis compared to other countries. GDP fell in the three quarters of the year by 3% compared to the same period last year compared to a decline of about 3.9% in the US, 5.9% in Germany and 6% in Japan. Only China and South Korea overtook Israel.
However, all of Israel’s advantage was due to an increase in exports of 0.7%, compared with a double-digit decrease in other countries, especially an increase in exports of goods of 5.3%, with exports of services falling by 4.7%. It is not clear why there is a strong increase in merchandise exports. According to monthly exports of goods, it fell by about 20% this year. Exports of high-tech services grew by about 10%. In contrast, Israel stood out negatively in a 10.1% decline in private consumption, more than any other country we examined. In terms of declining investment we were no different from other countries.
Similar to the forecast for the world, the Israeli economy is also expected to operate under restrictions until at least the second quarter. During this period, restrained economic activity with low growth and even decline is expected. Then, with the removal of the restrictions, a rapid recovery is expected in support of the release of deferred demand and the large amount of money lying in the banks, similar to that which existed before entering the second closure. The broad money aggregate (M3) has grown at a very sharp rate of about NIS 230 billion in the past year. Most of the increase was in current account balances, which grew by about NIS 100 billion, and deposits, which increased by about NIS 130 billion.
Of the 326,000 jobs that have disappeared in the past year (out of the industries in which the number of jobs has decreased), more than half (about 175) belong to industries such as food services, commerce, hospitality services, etc., after removing the restrictions. Overall, we expect the unemployment rate to be 6% -7% by the end of 2021.
The damage to household income was not very severe to the point of causing significant damage to private consumption. Total wage income in the economy together with government transfer payments (unemployment and benefits) were 2.5% higher in the 9 months of the year compared to 2019. The sharp decline in total wage payments was in industries with low wages, which should hurt current consumption in the economy, but Less in consumption of durable goods.
The chances of re-election to the Knesset are high, which means that the budget for 2021 will not be approved by mid-2021 at best. The “boxes” of the corona in the amount of about NIS 50 billion have already been approved and beyond that the budget will continue to be managed within a limited framework. Failure to approve the budget will make it difficult to take the necessary steps and reforms to get the economy out of the crisis, as well as to formulate the outline for fiscal convergence. The deficit is expected to reach 6% -8% in 2021. The risk of lowering the credit rating for Israel in the coming year is high.
Zabrzynski and Meitav Dash economists estimate that the inflation environment will rise in 2021, the economy will grow at a rate of about 5% and the price index will rise by about 1%. The shekel is expected to strengthen and interest rates will remain unchanged and begin to rise in 2022 due to rising inflation. However, if there is a significant deterioration in economic activity, it is best estimated that interest rates may fall negatively.
Regarding the markets and what is expected of us in the coming year, Zabzinski estimates that the next six months could be challenging for the markets. A high level of morbidity is expected to hurt economic activity. Uncertainty about US incentives may not clear up quickly. Investors’ high optimism about the stock market emerging from the polls may also be shaky.
However, in the end, we estimate that the stock market will be positive in 2021. The statistics are in favor of it. Out of ten recessions in the last 60 years in the US, in 9 the stock market has achieved a positive return on exit from the recession. Percent Compared to the previous year, the MSCI World stock index recorded a positive return.
This time the chances of a positive stock market are particularly high due to the lack of investment alternatives in a zero interest rate environment. In the government channel, it is best to generally hold a medium-short maturity and recommend increasing the portfolio’s bias in favor of the linked channel during the year. In corporate bonds, they recommend defensive exposure and prefer to take a risk through the equity channel.
It is clarified and emphasized that what is stated in this review does not constitute a substitute for advice that takes into account the data and the special needs of each person. The publication of the information in this review does not constitute a recommendation or opinion in connection with the execution of any transaction or investment in securities, including the purchase and / or sale of securities. It should be emphasized that for any information of any kind that appears in the review – each person must perform additional testing and verification, taking into account his data and special needs. It should be noted that the information may contain errors and that market changes and / or other changes may apply to it, and that significant deviations may also be discovered between the forecasts and analyzes that appear in the actual situation. Therefore, making any decision based on a fact, opinion, opinion, forecast or analysis that appears in the review – is the sole responsibility of the reader.
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