Hard times breed pessimism. The deep pain caused by the atrocities that Israel experienced on October 7 will take a very long time to heal, and, for some, may never heal. While the pre-war Israeli economy showed problematic signs, October 7 took us into a vastly different mode of economic activity altogether. The greatest human tragedy in the 75+ year history of our country, along with the absence of 300,000-plus members of the workforce who have been drafted into military reserve duty, obviously had such an impact.
However, while we are currently in a wartime state of economic routine, we should not lose sight of the day after. Some are very pessimistic about the post-war economic outlook in 2024 - whenever the official "war" ends. Such doomsayers are predicting that next year will be the most difficult for Israel’s economy in recent history.
Apologies for not sharing the same gloom, but from my vantage point as an Israeli player in the global/US capital markets, I actually see a promising landscape. The dark and dreary reality of our current war may very well yield to a solid but steady "rain" of positive Israeli economic activity, and in the US capital markets in particular, at some point in 2024.
What leads me to such an optimistic conclusion? An examination of the macro-economic factors at play globally, and in the US in particular, is very telling. Our Israeli hi-tech eco-system relishes a promising US economic outlook even more than we value positive domestic economic data. What happens 6,000-plus miles away in the biggest world economy - which also happens to be our strongest ally - matters, and matters greatly. It has been true since the 1990’s that what happens in Silicon Valley is aligned with what happens in the centers of Israeli hi-tech.
While we have been focusing (rightly) on the terrible, painful war, the US capital markets have been on a trajectory of greater vibrancy, robustness, and opportunity. The bearish market of 2022 and the uncertain market of 2023 seem to be at last yielding to a bullish outlook for 2024. It looks as though the US Federal Reserve is pulling off what the vast majority doubted less than a year ago - the "soft landing." The United States has seemingly managed to tame inflation through the use of interest rate hikes, while at the same time, not stemming economic growth too harshly in a manner that would cause a recession. The proverbial "soft landing" has in the main been completed. Interest rates are expected to begin to be reduced gradually, cautiously, once again in 2024, and this expectation is already starting to fuel a strong economic -and capital market - rally.
Assuming that is the case - and most Wall Street analysts believe that it is - we in Israel can hopefully ride that wave to spur our own post-war growth. The return of the vast majority of our reservists to the workforce, much as it did on a much larger scale in the US in the 1950s, can reasonably be expected to lead to post-war economic expansion, with the restoration of our valuable human capital to its productive state. A degree of enhanced unity on the Israeli domestic front (with the debate regarding judicial reform seemingly off the agenda in the near future) should have some positive carry-over effect on economic activity. Reservists who have fought side by side can turn to growing their companies, with lessons learned from the pre-war debacle. With the valuation of many Israeli companies - public and not-yet-public - reduced to modest levels following the post-Covid/post-SPAC implosion, the expectations of our stable of prospective IPO candidates as well as existing public companies are reasonable, which is a very favorable factor for completing public offerings and other financings.
Add to that positive mix of factors a favorable political story to be told concerning our Israeli companies on Wall Street. Investment banks should be able to sell Israeli offerings once again, especially with the positive view among those responsible for economic decisions in the US and in most Western countries (unlike the hostile environment in some universities) that Israel endured a horrible, unjustified attack and yet still managed to pull itself together and defeat its enemy (assuming that we can finish the job). The elimination (or at least severe reduction) of the military threat on one of our borders would generate further confidence in Israeli companies among investors.
In addition to all of the above, 2024 is an election year in the US. That should generally translate into a stable economic environment, albeit with more muted returns for investors, based on the past history of market performance in election years. Given the positive manner in which 2023 is concluding on Wall Street, and the lessons learned from the post-SPAC market meltdown, the US capital markets-and importantly for our purposes, the Israeli participants in those markets- should be able to anticipate reasonable growth. The unfettered "loose money" policies of the Covid period, along with artificially low interest rates over the past decade or so, are expected to give way in the prospective period to a more steady fiscal policy that maintains moderate-level interest rates, in order to ensure that the return of inflation is not a by-product of the next round of economic expansion. If that works according to design, there should be a solid environment into which mature, reasonably valued Israeli companies can arrive on the scene, if they so choose.
While there are no sure bets concerning the post-war economic (or political) landscape here in Israel, the arrival of a promising environment for the capital markets in the United States certainly could not hurt. If we are able to succeed in putting our own societal house in order post-war (not a certainty, but a fairly reasonable assumption), we will have where to go to reap the fruits of our courage and heroism in the throes of our current situation. The US capital markets will be a welcome destination for a "soft landing" of our own - the return to normalcy of successful Israeli offerings on Wall Street.
As we light our hanukiot and pray for the best this upcoming holiday, there is indeed light, and reason for economic optimism if and when we emerge victorious in our modern day war. As we say in the al hanissim prayer, "in those days, in this time".
The author is a partner at Meitar Law Offices in Israel.
Published by Globes, Israel business news - en.globes.co.il - on December 12, 2023.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2023.