1 00:00:02,720 --> 00:00:08,960 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. We are here at 2 00:00:09,000 --> 00:00:12,360 Speaker 1: the IMF with the Bank of Israel Governor Amir your own, 3 00:00:12,360 --> 00:00:15,640 Speaker 1: who is also the economic advisor to the Israeli government 4 00:00:16,120 --> 00:00:18,040 Speaker 1: governing your own. Thank you so much for being here 5 00:00:18,160 --> 00:00:20,680 Speaker 1: with us. What a week. It has been quite a 6 00:00:20,680 --> 00:00:24,120 Speaker 1: different IMF week than usual. What's been your takeaway so. 7 00:00:24,120 --> 00:00:27,280 Speaker 2: Far, Lisa, thank you for having me. I think it's 8 00:00:27,480 --> 00:00:36,199 Speaker 2: clear uncertainty. The global economy seeing exceptional uncertainty. You know, 9 00:00:36,320 --> 00:00:40,040 Speaker 2: most of the implications are that global trade will decline 10 00:00:40,159 --> 00:00:44,280 Speaker 2: with it, global growth with declient make probably some tack 11 00:00:44,360 --> 00:00:49,000 Speaker 2: up in inflation in the US. But the implications are 12 00:00:49,080 --> 00:00:51,519 Speaker 2: far from clear. A lot of it will depend on 13 00:00:51,560 --> 00:00:55,520 Speaker 2: what the final situation in terms of tariffs will be, 14 00:00:56,080 --> 00:00:58,960 Speaker 2: what they're the duration of the uncertainty. But the word 15 00:00:59,040 --> 00:01:04,840 Speaker 2: uncertainty is everywhere, and that's the key thing. That uncertainty 16 00:01:04,920 --> 00:01:09,360 Speaker 2: in itself is weighing in on economy and on decision makers, 17 00:01:09,440 --> 00:01:15,520 Speaker 2: whether it's companies, whether it's households, investments, and on sentiment. 18 00:01:16,400 --> 00:01:19,400 Speaker 1: Earlier this year, you talked about it being very achievable 19 00:01:19,560 --> 00:01:22,679 Speaker 1: for the Israeli inflation rate to get down between that 20 00:01:22,720 --> 00:01:24,720 Speaker 1: one and three percent range this year. It's not that 21 00:01:24,800 --> 00:01:27,320 Speaker 1: far away from it right now. Do you feel like 22 00:01:27,720 --> 00:01:30,080 Speaker 1: we're still on a path. You're still seeing a path 23 00:01:30,120 --> 00:01:34,080 Speaker 1: in Israel to that inflation rate enough to cut rates 24 00:01:34,120 --> 00:01:35,759 Speaker 1: even twice later this year. 25 00:01:36,440 --> 00:01:40,560 Speaker 2: So we've grown two percent in twenty three and one 26 00:01:40,600 --> 00:01:43,080 Speaker 2: percent in twenty four, kind of quite a bit below 27 00:01:43,160 --> 00:01:48,280 Speaker 2: our our potential, which is around four percent, but the 28 00:01:48,360 --> 00:01:55,040 Speaker 2: Israeli economy has demonstrated great resiliency, enduring and an immense 29 00:01:55,080 --> 00:01:57,880 Speaker 2: shock that we have. We predict that we will grow 30 00:01:57,960 --> 00:02:00,320 Speaker 2: around three and a half and about four and a 31 00:02:00,400 --> 00:02:03,560 Speaker 2: half percent in twenty five and twenty six, respectively, and 32 00:02:03,640 --> 00:02:07,640 Speaker 2: this is after shaving a half percent due to tariffs 33 00:02:07,800 --> 00:02:11,600 Speaker 2: Israel If I just say Israel's is exposed to the tariffs, 34 00:02:11,919 --> 00:02:15,360 Speaker 2: but our primary because most of our exports are in 35 00:02:15,400 --> 00:02:18,880 Speaker 2: the services, our primary focus and the way it can 36 00:02:18,919 --> 00:02:22,640 Speaker 2: affect us is through the decline in global trade and 37 00:02:22,680 --> 00:02:27,440 Speaker 2: if we see stock markets sustainably low, also through VC 38 00:02:27,600 --> 00:02:30,960 Speaker 2: investment into our high tech area. In terms of the 39 00:02:31,000 --> 00:02:35,720 Speaker 2: inflation and your question, we've had excess demand basically because 40 00:02:35,720 --> 00:02:39,560 Speaker 2: of labor shortages. We've seen active demand and we need 41 00:02:39,600 --> 00:02:43,000 Speaker 2: that process to come into balance. We see that process 42 00:02:43,400 --> 00:02:47,080 Speaker 2: has started. We predict it will come into balance in 43 00:02:47,120 --> 00:02:50,080 Speaker 2: the second half of the year, and with it, inflation 44 00:02:50,200 --> 00:02:53,720 Speaker 2: will also continue to subside into our target, and we 45 00:02:53,840 --> 00:02:57,520 Speaker 2: penciled in if that happens, we will be able to 46 00:02:57,600 --> 00:03:00,320 Speaker 2: do somewhere like around two cuts. That's what the Search 47 00:03:00,360 --> 00:03:03,800 Speaker 2: Department penciled in, two cuts by within a year from now. 48 00:03:04,280 --> 00:03:06,640 Speaker 2: But I want to emphasize we are in a great 49 00:03:07,080 --> 00:03:10,680 Speaker 2: uncertainty is very high, not just because of tariffs. We 50 00:03:10,760 --> 00:03:17,480 Speaker 2: have our own geopolitical risk surrounding us, and therefore we 51 00:03:18,160 --> 00:03:22,120 Speaker 2: are very data dependent. If we see this process moving faster, 52 00:03:22,560 --> 00:03:26,480 Speaker 2: that is inflation decelerating faster, but we want to see 53 00:03:26,520 --> 00:03:31,280 Speaker 2: inflation sustainably getting into the target, we can move faster. 54 00:03:31,800 --> 00:03:35,160 Speaker 2: But on the other hand, if we see inflation sticky 55 00:03:36,360 --> 00:03:40,400 Speaker 2: and we as market turmoil is happening, we see the 56 00:03:40,440 --> 00:03:45,080 Speaker 2: shekel depreciate has depreciated, that has an effect on inflation, 57 00:03:45,400 --> 00:03:48,840 Speaker 2: and if inflation in the US rises, we import some 58 00:03:48,920 --> 00:03:52,640 Speaker 2: of that inflation. So there's a lot of risks that 59 00:03:52,680 --> 00:03:56,080 Speaker 2: are tilted up, and if we see inflation stickier, we 60 00:03:56,160 --> 00:03:59,040 Speaker 2: will have to be restrictive for a longer period. 61 00:03:59,200 --> 00:04:01,840 Speaker 1: You know, it's amazing because most Central banks here when 62 00:04:01,840 --> 00:04:04,560 Speaker 1: I talk about the immense shock, they're talking about tariffs. 63 00:04:04,880 --> 00:04:06,760 Speaker 1: For you, it's different. There is a war going on. 64 00:04:07,040 --> 00:04:10,080 Speaker 1: It is the Israel War in Gaza, and there's a 65 00:04:10,120 --> 00:04:12,560 Speaker 1: real question here about how long it will go on. 66 00:04:12,680 --> 00:04:14,840 Speaker 1: There was a feeling earlier this year that it was 67 00:04:15,280 --> 00:04:18,080 Speaker 1: dying down. Now it seems to be inflaming once again. 68 00:04:18,839 --> 00:04:20,839 Speaker 1: How much does that sort of set back some of 69 00:04:20,839 --> 00:04:23,040 Speaker 1: these goals of getting people back to the workforce not 70 00:04:23,040 --> 00:04:24,719 Speaker 1: necessarily deployed elsewhere. 71 00:04:25,720 --> 00:04:30,680 Speaker 2: So the numbers that I've stated assume that we are 72 00:04:30,720 --> 00:04:32,920 Speaker 2: going to be in the coming months in the current 73 00:04:33,040 --> 00:04:37,279 Speaker 2: level of reserve usage and that will decline over time 74 00:04:37,320 --> 00:04:39,120 Speaker 2: again in the second half of the year, and that 75 00:04:39,160 --> 00:04:43,880 Speaker 2: will alleviate some of that labor shortage that we've talked about. 76 00:04:44,240 --> 00:04:48,280 Speaker 2: We have in our forecast. Also what happens if we 77 00:04:48,320 --> 00:04:52,440 Speaker 2: see farther escalation that goes on in Gaza, that goes 78 00:04:52,480 --> 00:04:57,719 Speaker 2: on for another six months and bigger usage of reserves 79 00:04:57,960 --> 00:05:03,680 Speaker 2: and there we shave an additional half percent of GDP growth. 80 00:05:04,800 --> 00:05:08,080 Speaker 2: That's kind of the two scenarios that we've outlaid. But 81 00:05:08,240 --> 00:05:11,080 Speaker 2: even around those, you can imagine there are many, many 82 00:05:11,160 --> 00:05:13,359 Speaker 2: other configuration that one can face. 83 00:05:13,600 --> 00:05:16,040 Speaker 1: You also are the economic advisor to the government, and 84 00:05:16,080 --> 00:05:18,160 Speaker 1: I'm sure there are a lot of conversations about how 85 00:05:18,200 --> 00:05:24,880 Speaker 1: to sustainably keep financing ongoing munitions, ongoing defense efforts, given 86 00:05:25,279 --> 00:05:27,600 Speaker 1: that it is an uncertain time and given some of 87 00:05:27,640 --> 00:05:30,000 Speaker 1: the pressures on the economy. You've made the case that 88 00:05:30,040 --> 00:05:34,400 Speaker 1: it's important to cut spending rather than simply do this 89 00:05:34,440 --> 00:05:37,560 Speaker 1: by debt financing. Why is that so important to you 90 00:05:37,600 --> 00:05:39,800 Speaker 1: given the fact that this is a crisis and it 91 00:05:39,839 --> 00:05:41,040 Speaker 1: is likely to be ongoing. 92 00:05:42,040 --> 00:05:46,120 Speaker 2: A Israel is in a situation as you just mentioned, 93 00:05:46,560 --> 00:05:49,880 Speaker 2: we have a lot of uncertainty that is very related 94 00:05:49,920 --> 00:05:55,520 Speaker 2: beyond tariffs to the ongoing conflict, and that requires spending, 95 00:05:55,560 --> 00:05:57,960 Speaker 2: and we want to demonstrate to the world that we 96 00:05:58,080 --> 00:06:03,599 Speaker 2: continue to have responsible fiscal standing. And that amounts to 97 00:06:04,200 --> 00:06:08,480 Speaker 2: basically allow even if you allow debt to GDP rise 98 00:06:09,240 --> 00:06:11,920 Speaker 2: in the current year because of the war, you want 99 00:06:11,960 --> 00:06:15,640 Speaker 2: to have a credible trajectory that it hasn't inverted u 100 00:06:15,760 --> 00:06:18,840 Speaker 2: shape and it comes down. And you got to give 101 00:06:18,880 --> 00:06:23,240 Speaker 2: the government credit as it did fiscal consolidation of one 102 00:06:23,279 --> 00:06:26,160 Speaker 2: percent in the twenty twenty four budget and one and 103 00:06:26,160 --> 00:06:30,520 Speaker 2: a half percent consolidation in the twenty twenty five budget 104 00:06:30,680 --> 00:06:33,640 Speaker 2: basically according to the Bank of Israel, consistent with the 105 00:06:33,680 --> 00:06:38,960 Speaker 2: Bank of Israel's recommendation. And of course whether we need 106 00:06:39,000 --> 00:06:42,560 Speaker 2: to do more down the road will depend also on 107 00:06:42,600 --> 00:06:47,600 Speaker 2: the geopolitical events and whether how far more will military 108 00:06:47,680 --> 00:06:50,520 Speaker 2: spending need to be. But at least right now we 109 00:06:50,640 --> 00:06:54,120 Speaker 2: can say we do not have a diverging debt to 110 00:06:54,200 --> 00:06:58,120 Speaker 2: GDP process, and that is I think very important. And 111 00:06:58,200 --> 00:07:01,880 Speaker 2: we saw it once the ceasefire in Lebanon happened and 112 00:07:02,040 --> 00:07:06,120 Speaker 2: the budget was approved. We saw the Israeli CDs, the 113 00:07:06,200 --> 00:07:13,520 Speaker 2: spread between the Israeli bond and US bond decline quite significantly. 114 00:07:13,800 --> 00:07:16,320 Speaker 1: As the economic advisor, how important is it for you 115 00:07:16,360 --> 00:07:18,200 Speaker 1: to see the war come to an end in order 116 00:07:18,240 --> 00:07:21,920 Speaker 1: to fortify an economy that has been hit by tourism 117 00:07:22,400 --> 00:07:25,680 Speaker 1: not being as robust as it has been in the past, 118 00:07:25,720 --> 00:07:29,440 Speaker 1: and questions around ongoing investments in bound despite some of 119 00:07:29,480 --> 00:07:30,360 Speaker 1: the tech investments. 120 00:07:30,440 --> 00:07:33,080 Speaker 2: Let me just say, obviously we all want the hostages 121 00:07:33,200 --> 00:07:39,520 Speaker 2: first and foremost. Coming back from an economic perspective, we 122 00:07:39,600 --> 00:07:44,000 Speaker 2: all understand that reducing uncertainty and having at the end 123 00:07:44,080 --> 00:07:49,440 Speaker 2: some kind of arrangements that provide for a sustainable, secure, 124 00:07:49,560 --> 00:07:54,480 Speaker 2: situation that will help the economy, not just Israel, the 125 00:07:54,560 --> 00:07:57,960 Speaker 2: region as a whole, and that will allow us to 126 00:07:58,880 --> 00:08:05,040 Speaker 2: direct also more energy towards items like education, infrastructure, and 127 00:08:05,240 --> 00:08:07,720 Speaker 2: enhance potential growth down the road. 128 00:08:08,560 --> 00:08:11,120 Speaker 1: Right now, the source of volatility seems to be the 129 00:08:11,200 --> 00:08:15,040 Speaker 1: United States more broadly at these meetings, and people are 130 00:08:15,080 --> 00:08:18,040 Speaker 1: grappling with all sorts of uncertainty shocks that you've dealt 131 00:08:18,040 --> 00:08:22,400 Speaker 1: with before in different capacities, And I'm just wondering whether 132 00:08:22,960 --> 00:08:26,400 Speaker 1: that's going to stress the Israeli economy as well, based 133 00:08:26,440 --> 00:08:29,200 Speaker 1: on the volatility and the gyrations in the US market 134 00:08:29,480 --> 00:08:33,000 Speaker 1: and this sense of lack of clarity around the US 135 00:08:33,160 --> 00:08:34,120 Speaker 1: role in all of this. 136 00:08:35,000 --> 00:08:38,160 Speaker 2: So, first of all, I think everyone understands that uncertainty 137 00:08:38,360 --> 00:08:43,280 Speaker 2: is weighing on the economy, the global economy, the US economy. 138 00:08:43,760 --> 00:08:48,959 Speaker 2: We saw the whipsaw in the stock market, Israel's pensions, 139 00:08:49,080 --> 00:08:53,760 Speaker 2: a lot of them are sitting in the in stock markets. Obviously, 140 00:08:53,800 --> 00:08:58,000 Speaker 2: our high tech industry is funded a lot by US 141 00:08:58,200 --> 00:09:03,040 Speaker 2: VC money. So to the extent that uncertainty weighs on 142 00:09:03,080 --> 00:09:08,080 Speaker 2: those two things, that is also directly affecting our economy 143 00:09:08,240 --> 00:09:11,640 Speaker 2: through that channel. 144 00:09:11,240 --> 00:09:12,920 Speaker 1: What do you get the sense of when you speak 145 00:09:12,960 --> 00:09:16,600 Speaker 1: to US representatives here, do you get some sense that 146 00:09:16,640 --> 00:09:18,680 Speaker 1: things are going to calm down anytime soon? 147 00:09:20,320 --> 00:09:24,679 Speaker 2: I don't know. I think the major issue is to 148 00:09:24,840 --> 00:09:31,280 Speaker 2: come to sustainable arrangements and to reduce the uncertainty as 149 00:09:32,480 --> 00:09:37,520 Speaker 2: fast as one as one can, and I think that 150 00:09:37,600 --> 00:09:42,280 Speaker 2: will help the economy both here and abroad. 151 00:09:42,640 --> 00:09:44,920 Speaker 1: Company, everyone, thank you so much for being with us today. 152 00:09:45,160 --> 00:09:48,360 Speaker 1: That was Governor Amir Na of the Israeli Central Bank.