“I see 2023 as a transition year. Last year we saw the world experience the shock of big inflation, China shutting down completely and its economy as well and this created a supply chain crisis worldwide. Europe went to war and this is still being waged and the price of energy jumped following that,” Lombard Odier chief economist Dr. Samy Chaar told “Globes.” “All these took place after the Covid crisis, which in fact consolidated an environment that led to interest rate hikes around the world.”
Chaar, who serves on Lombard Odier’s investments committee leads a team at the Swiss bank that analyzes and applies macroeconomic issues including growth, economic trends and the measures being taken by the world’s central banks. He tells “Globes” not only how he sees the global macroeconomic situation and what can impede the worldwide struggle against inflation but also discusses the political upheaval in Israel, which does not alarm him. He claims that this is not a unique situation but a worldwide phenomenon.
“I know the political situation in Israel well”
Chaar is familiar with the Israeli market because Lombard Odier works closely with Israeli customers and is striving to expand operations in Israel.
“I understand the political situation in Israel and know it very well,” he says, referring to the political crisis prevailing in the country. “First of all, it is important for me to provide a caveat and point out that politics is currently messy everywhere in the world, not only in Israel. Society is divided and polarized everywhere, the elections in the US are not going to be easy, there are protests in France, the coalition in Germany is complex, and Britain is also in a difficult situation.
“When this is the situation, I focus on what companies are doing in the macroeconomic field, and Israeli companies are successful regardless of the political background. From the technological angle in terms of achievements at the highest level, Israel is in a good place. It is a center and incubator for advanced technology. Israel’s economic situation is also excellent, inflation is still high, but I I’m not worried in this regard, the situation will improve. So I don’t expect Israel to suffer from inflation for a long time.”
Another issue that is relevant to foreign investors in this context is the shekel’s performance. Since the start of 2023, with the struggle over judicial reform in the background, the shekel has performed weakly and depreciated by about 4% against the US dollar. However, Chaar believes that this is a temporary situation.
“I mainly see the depreciation of the shekel as a matter of real interest rates combined with inflation,” he says, “When inflation is halted and interest rates stop rising, the shekel will recover.”
Chaar is also optimistic about the prospects for the global economy.
“China has completely opened up and supply chains are functioning again, commodity prices have dropped a lot and energy prices have also returned to reasonable levels compared with the crisis period surrounding the war between Ukraine and Russia,” he says. “I imagine the struggle of the world economy as a marathon – you have to run 42 kilometers and reach the finish line, which is an inflation rate of about 3%. We are in the middle of the race, we have come a long way especially when it comes to energy and supply prices, but the economy is still hot.”
In what sense is it hot?
“Mainly in the area of wages, which are still very high. In general, the employment market is especially hot in the US. The interest rate hikes are supposed to cool the labor market, and it is indeed not as active as it was a year ago. The number of available jobs fell from 200-300,000 per month from 500-600,000. On wage increases, the peak was an annual rise of 8%-9% and now we see a range of 4%-5%. This is also affected by the interest rate hikes by the world’s central banks.”
“So if we return to the marathon analogy, we still have about a third of the race left to reach the finish line in economic terms. We need the labor market to continue to cool down – in the US and elsewhere – and we will see the number of vacant jobs drop and wage levels fall. If it continues at the current rate, we will reach a good place by the end of 2023.”
Do you think we reached the ceiling in terms of interest rates?
If 2022 was the year of interest rate hikes, when central banks were particularly hawkish and took sharp measures that surprised the markets, then we predict that at the end of the year we will reach a halt in the hikes, or at the beginning of 2024 at the latest. In the US, I do not estimate that the Federal Reserve will raise interest rates above its current level, with perhaps one more increase of 0.25%, which would bring the upper limit to 5.5%. In Europe we will see a maximum interest rate of 3.75%. The need at the moment is to keep up the pressure, not increase it, and this is a big strategic difference. Now we have to let the interest rate do its magic.”
Published by Globes, Israel business news – en.globes.co.il – on June 29, 2023.
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