2023: Recession or recovery?

Dave Lubetzky, Zvi Stepak, Gilad Altshuler and Yair Lapidot credit: Eyal Izhar and Ilan Besor
Dave Lubetzky, Zvi Stepak, Gilad Altshuler and Yair Lapidot credit: Eyal Izhar and Ilan Besor

The heads of four of Israel's biggest investment houses give their economic and investment predictions for next year.

The heads of four of Israel's biggest investment houses gave their predictions in a panel discussion held at the Tel Aviv Stock Exchange (TASE) yesterday by IBI's Four Seasons Financial Planning. The four participants were Altshuler Shaham founder ande co-CEO Gilad Altshuler, Meitav Dash Investments founder and owner Zvi Stepak, IBI Investments CEO Dave Lubetzky, and Yelin Lapidot co-CEO Yair Lapidot.

Real estate market. Will prices soon start falling?

Altshuler: "At first, contractors are very strong and don't lower prices. But when the interest rate is between 0% and 1%, then it is easy for them to keep inventory. When you pay 5%-6% interest rates, then the ability to hold inventory erodes. In Israel, the contractors used to say that they don't cut apartment prices, but you would buy an apartment and get a free Subaru or kitchen. We will start to see such phenomena soon mainly in projects for which astronomical prices have been paid. But in the end housing prices will go down, it's just a matter of time. Residential real estate as an investment is not interesting at the moment."

Stepak: "Some of the housing construction companies in Israel are leveraged and their bonds have reached high single-digit yields. And this is after several years in which they have accumulated quite a bit of cash. The market is beginning to look at this with suspicion. If today the price per square meter of an apartment in Tel Aviv is NIS 70,000, tomorrow it could fall to NIS 40,000. After this year's 20% rise in housing prices, I believe that there will be a decrease not very far from that."

The forecast for a recession: A combination of inflation and recession is on the way

The panel participants were asked if the central banks would manage to tame inflation without pushing economies into recession. Lapidot said, "They can beat inflation, but they do not want to reach a major recession. Since the 2008 crisis, they have been operating counter-cyclically. Since the Covid crisis, they have been very skilled nowadays in stopping investors from getting hysterical. If the interest rate hikes lead to clear indications of a major recession, the US Fed will backtrack very quickly and cut interest rates like it did in 2020."

Altshuler: "I see the US economy entering some sort of economic slowdown. The moment that happens then the Fed will halt and re-examine things. I believe that in the middle of 2023, or towards the end, we will begin to see rate cuts."

But Stepak disagreed, ""I do not share this view. The risk of stagflation exists in Europe and the UK, but not in Asia, the US or Israel. In my personal assessment, the interest rate will continue to rise in the US more than the markets currently expect. I estimate that the Fed will stop the hikes at some point, but will not risk cutting the interest rate quickly, because then it might get another wave of inflation and then we will be in a completely different scenario. The Fed prefers a recession that it knows how to handle it than inflation that will get out of control."

Monetary tightening. When will central banks begin cutting rates?

Altshuler: "The stock market should theoretically be lower than it is today. This is because everyone is looking ahead. A recession is expected in the market which will lead to lower yields (on bonds) and lower interest rates (later on). So no one wants to miss this point. This is the reason why the stock market are maintaining stability despite the very difficult conditions in the world."

Stepak: "We estimate that inflation in Israel will enter the Bank of Israel's target range (1%-3%) next year. But it should also be remembered that the economy in 2023 will not be the same Israeli economy as it is today. In 2022, the growth rate is expected to be 6%. Estimates are that next year it will be 3% or even less. The (fiscal) deficit, which ended very well this year, is expected to rise to 3%-4% next year. All the engines that brought the state taxes such as in real estate or the high-tech exits - all this is over. Next year looks less good than the current year in Israel. This is not expected to be a terrible year, but one in which the growth rate will be almost the same as the population growth rate."

Israel's economy will continue to be stronger by international comparison

Lubetzky: "The basic conditions of Israel's economy are indeed better. But a government is now being established whose economic agenda is difficult to understand. Half are talking about an extreme libertarian approach and dissolving the Histadrut, and the other half are talking about how to transfer more tax money. In the best case scenario, they will let those who work in Tel Aviv continue doing business and making a living. If the business sector loses control, we may enter a problematic situation. The likelihood of this is not high, despite the scaremongering.

"What worries me more is what will happen in the high-tech industry. The system has gotten used to receiving crazy amounts of money from investments and exits. High-tech companies and venture capital funds will be more tight-fisted, but good companies will survive the crisis. We will definitely see an impact on the office market and the employment market. There are quite a few tech 'zombies' out there, and the current situation will finish them off for sure."

How do you see 2023?

Next year, the investment house chiefs do not forecast any extreme situation but do see a very different year than 2022.

Stepak: "At the moment I don't see a very tumultuous year in terms of sharp rises or falls. You have to remember that 2022 came after rises of more than 30% on the Tel Aviv Stock Exchange in 2021."

Altshuler: "From the second half of 2023 we will begin to see a slowdown and recession in the US economy. This should lead to interest rate cuts."

Lubetzky: "Those who try to find the right timing in the markets should keep their eyes on the real economy. When it is bad in the real economy, it will be good in the stock markets."

Published by Globes, Israel business news - en.globes.co.il - on December 21, 2022.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2022.

Dave Lubetzky, Zvi Stepak, Gilad Altshuler and Yair Lapidot credit: Eyal Izhar and Ilan Besor
Dave Lubetzky, Zvi Stepak, Gilad Altshuler and Yair Lapidot credit: Eyal Izhar and Ilan Besor
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