WEBVTT - Israeli Central Bank Governor Amir Yaron Talks Global Trade War

0:00:02.720 --> 0:00:08.960
<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news. We are here at

0:00:09.000 --> 0:00:12.360
<v Speaker 1>the IMF with the Bank of Israel Governor Amir your own,

0:00:12.360 --> 0:00:15.640
<v Speaker 1>who is also the economic advisor to the Israeli government

0:00:16.120 --> 0:00:18.040
<v Speaker 1>governing your own. Thank you so much for being here

0:00:18.160 --> 0:00:20.680
<v Speaker 1>with us. What a week. It has been quite a

0:00:20.680 --> 0:00:24.120
<v Speaker 1>different IMF week than usual. What's been your takeaway so.

0:00:24.120 --> 0:00:27.280
<v Speaker 2>Far, Lisa, thank you for having me. I think it's

0:00:27.480 --> 0:00:36.199
<v Speaker 2>clear uncertainty. The global economy seeing exceptional uncertainty. You know,

0:00:36.320 --> 0:00:40.040
<v Speaker 2>most of the implications are that global trade will decline

0:00:40.159 --> 0:00:44.280
<v Speaker 2>with it, global growth with declient make probably some tack

0:00:44.360 --> 0:00:49.000
<v Speaker 2>up in inflation in the US. But the implications are

0:00:49.080 --> 0:00:51.519
<v Speaker 2>far from clear. A lot of it will depend on

0:00:51.560 --> 0:00:55.520
<v Speaker 2>what the final situation in terms of tariffs will be,

0:00:56.080 --> 0:00:58.960
<v Speaker 2>what they're the duration of the uncertainty. But the word

0:00:59.040 --> 0:01:04.840
<v Speaker 2>uncertainty is everywhere, and that's the key thing. That uncertainty

0:01:04.920 --> 0:01:09.360
<v Speaker 2>in itself is weighing in on economy and on decision makers,

0:01:09.440 --> 0:01:15.520
<v Speaker 2>whether it's companies, whether it's households, investments, and on sentiment.

0:01:16.400 --> 0:01:19.400
<v Speaker 1>Earlier this year, you talked about it being very achievable

0:01:19.560 --> 0:01:22.679
<v Speaker 1>for the Israeli inflation rate to get down between that

0:01:22.720 --> 0:01:24.720
<v Speaker 1>one and three percent range this year. It's not that

0:01:24.800 --> 0:01:27.320
<v Speaker 1>far away from it right now. Do you feel like

0:01:27.720 --> 0:01:30.080
<v Speaker 1>we're still on a path. You're still seeing a path

0:01:30.120 --> 0:01:34.080
<v Speaker 1>in Israel to that inflation rate enough to cut rates

0:01:34.120 --> 0:01:35.759
<v Speaker 1>even twice later this year.

0:01:36.440 --> 0:01:40.560
<v Speaker 2>So we've grown two percent in twenty three and one

0:01:40.600 --> 0:01:43.080
<v Speaker 2>percent in twenty four, kind of quite a bit below

0:01:43.160 --> 0:01:48.280
<v Speaker 2>our our potential, which is around four percent, but the

0:01:48.360 --> 0:01:55.040
<v Speaker 2>Israeli economy has demonstrated great resiliency, enduring and an immense

0:01:55.080 --> 0:01:57.880
<v Speaker 2>shock that we have. We predict that we will grow

0:01:57.960 --> 0:02:00.320
<v Speaker 2>around three and a half and about four and a

0:02:00.400 --> 0:02:03.560
<v Speaker 2>half percent in twenty five and twenty six, respectively, and

0:02:03.640 --> 0:02:07.640
<v Speaker 2>this is after shaving a half percent due to tariffs

0:02:07.800 --> 0:02:11.600
<v Speaker 2>Israel If I just say Israel's is exposed to the tariffs,

0:02:11.919 --> 0:02:15.360
<v Speaker 2>but our primary because most of our exports are in

0:02:15.400 --> 0:02:18.880
<v Speaker 2>the services, our primary focus and the way it can

0:02:18.919 --> 0:02:22.640
<v Speaker 2>affect us is through the decline in global trade and

0:02:22.680 --> 0:02:27.440
<v Speaker 2>if we see stock markets sustainably low, also through VC

0:02:27.600 --> 0:02:30.960
<v Speaker 2>investment into our high tech area. In terms of the

0:02:31.000 --> 0:02:35.720
<v Speaker 2>inflation and your question, we've had excess demand basically because

0:02:35.720 --> 0:02:39.560
<v Speaker 2>of labor shortages. We've seen active demand and we need

0:02:39.600 --> 0:02:43.000
<v Speaker 2>that process to come into balance. We see that process

0:02:43.400 --> 0:02:47.080
<v Speaker 2>has started. We predict it will come into balance in

0:02:47.120 --> 0:02:50.080
<v Speaker 2>the second half of the year, and with it, inflation

0:02:50.200 --> 0:02:53.720
<v Speaker 2>will also continue to subside into our target, and we

0:02:53.840 --> 0:02:57.520
<v Speaker 2>penciled in if that happens, we will be able to

0:02:57.600 --> 0:03:00.320
<v Speaker 2>do somewhere like around two cuts. That's what the Search

0:03:00.360 --> 0:03:03.800
<v Speaker 2>Department penciled in, two cuts by within a year from now.

0:03:04.280 --> 0:03:06.640
<v Speaker 2>But I want to emphasize we are in a great

0:03:07.080 --> 0:03:10.680
<v Speaker 2>uncertainty is very high, not just because of tariffs. We

0:03:10.760 --> 0:03:17.480
<v Speaker 2>have our own geopolitical risk surrounding us, and therefore we

0:03:18.160 --> 0:03:22.120
<v Speaker 2>are very data dependent. If we see this process moving faster,

0:03:22.560 --> 0:03:26.480
<v Speaker 2>that is inflation decelerating faster, but we want to see

0:03:26.520 --> 0:03:31.280
<v Speaker 2>inflation sustainably getting into the target, we can move faster.

0:03:31.800 --> 0:03:35.160
<v Speaker 2>But on the other hand, if we see inflation sticky

0:03:36.360 --> 0:03:40.400
<v Speaker 2>and we as market turmoil is happening, we see the

0:03:40.440 --> 0:03:45.080
<v Speaker 2>shekel depreciate has depreciated, that has an effect on inflation,

0:03:45.400 --> 0:03:48.840
<v Speaker 2>and if inflation in the US rises, we import some

0:03:48.920 --> 0:03:52.640
<v Speaker 2>of that inflation. So there's a lot of risks that

0:03:52.680 --> 0:03:56.080
<v Speaker 2>are tilted up, and if we see inflation stickier, we

0:03:56.160 --> 0:03:59.040
<v Speaker 2>will have to be restrictive for a longer period.

0:03:59.200 --> 0:04:01.840
<v Speaker 1>You know, it's amazing because most Central banks here when

0:04:01.840 --> 0:04:04.560
<v Speaker 1>I talk about the immense shock, they're talking about tariffs.

0:04:04.880 --> 0:04:06.760
<v Speaker 1>For you, it's different. There is a war going on.

0:04:07.040 --> 0:04:10.080
<v Speaker 1>It is the Israel War in Gaza, and there's a

0:04:10.120 --> 0:04:12.560
<v Speaker 1>real question here about how long it will go on.

0:04:12.680 --> 0:04:14.840
<v Speaker 1>There was a feeling earlier this year that it was

0:04:15.280 --> 0:04:18.080
<v Speaker 1>dying down. Now it seems to be inflaming once again.

0:04:18.839 --> 0:04:20.839
<v Speaker 1>How much does that sort of set back some of

0:04:20.839 --> 0:04:23.040
<v Speaker 1>these goals of getting people back to the workforce not

0:04:23.040 --> 0:04:24.719
<v Speaker 1>necessarily deployed elsewhere.

0:04:25.720 --> 0:04:30.680
<v Speaker 2>So the numbers that I've stated assume that we are

0:04:30.720 --> 0:04:32.920
<v Speaker 2>going to be in the coming months in the current

0:04:33.040 --> 0:04:37.279
<v Speaker 2>level of reserve usage and that will decline over time

0:04:37.320 --> 0:04:39.120
<v Speaker 2>again in the second half of the year, and that

0:04:39.160 --> 0:04:43.880
<v Speaker 2>will alleviate some of that labor shortage that we've talked about.

0:04:44.240 --> 0:04:48.280
<v Speaker 2>We have in our forecast. Also what happens if we

0:04:48.320 --> 0:04:52.440
<v Speaker 2>see farther escalation that goes on in Gaza, that goes

0:04:52.480 --> 0:04:57.719
<v Speaker 2>on for another six months and bigger usage of reserves

0:04:57.960 --> 0:05:03.680
<v Speaker 2>and there we shave an additional half percent of GDP growth.

0:05:04.800 --> 0:05:08.080
<v Speaker 2>That's kind of the two scenarios that we've outlaid. But

0:05:08.240 --> 0:05:11.080
<v Speaker 2>even around those, you can imagine there are many, many

0:05:11.160 --> 0:05:13.359
<v Speaker 2>other configuration that one can face.

0:05:13.600 --> 0:05:16.040
<v Speaker 1>You also are the economic advisor to the government, and

0:05:16.080 --> 0:05:18.160
<v Speaker 1>I'm sure there are a lot of conversations about how

0:05:18.200 --> 0:05:24.880
<v Speaker 1>to sustainably keep financing ongoing munitions, ongoing defense efforts, given

0:05:25.279 --> 0:05:27.600
<v Speaker 1>that it is an uncertain time and given some of

0:05:27.640 --> 0:05:30.000
<v Speaker 1>the pressures on the economy. You've made the case that

0:05:30.040 --> 0:05:34.400
<v Speaker 1>it's important to cut spending rather than simply do this

0:05:34.440 --> 0:05:37.560
<v Speaker 1>by debt financing. Why is that so important to you

0:05:37.600 --> 0:05:39.800
<v Speaker 1>given the fact that this is a crisis and it

0:05:39.839 --> 0:05:41.040
<v Speaker 1>is likely to be ongoing.

0:05:42.040 --> 0:05:46.120
<v Speaker 2>A Israel is in a situation as you just mentioned,

0:05:46.560 --> 0:05:49.880
<v Speaker 2>we have a lot of uncertainty that is very related

0:05:49.920 --> 0:05:55.520
<v Speaker 2>beyond tariffs to the ongoing conflict, and that requires spending,

0:05:55.560 --> 0:05:57.960
<v Speaker 2>and we want to demonstrate to the world that we

0:05:58.080 --> 0:06:03.599
<v Speaker 2>continue to have responsible fiscal standing. And that amounts to

0:06:04.200 --> 0:06:08.480
<v Speaker 2>basically allow even if you allow debt to GDP rise

0:06:09.240 --> 0:06:11.920
<v Speaker 2>in the current year because of the war, you want

0:06:11.960 --> 0:06:15.640
<v Speaker 2>to have a credible trajectory that it hasn't inverted u

0:06:15.760 --> 0:06:18.840
<v Speaker 2>shape and it comes down. And you got to give

0:06:18.880 --> 0:06:23.240
<v Speaker 2>the government credit as it did fiscal consolidation of one

0:06:23.279 --> 0:06:26.160
<v Speaker 2>percent in the twenty twenty four budget and one and

0:06:26.160 --> 0:06:30.520
<v Speaker 2>a half percent consolidation in the twenty twenty five budget

0:06:30.680 --> 0:06:33.640
<v Speaker 2>basically according to the Bank of Israel, consistent with the

0:06:33.680 --> 0:06:38.960
<v Speaker 2>Bank of Israel's recommendation. And of course whether we need

0:06:39.000 --> 0:06:42.560
<v Speaker 2>to do more down the road will depend also on

0:06:42.600 --> 0:06:47.600
<v Speaker 2>the geopolitical events and whether how far more will military

0:06:47.680 --> 0:06:50.520
<v Speaker 2>spending need to be. But at least right now we

0:06:50.640 --> 0:06:54.120
<v Speaker 2>can say we do not have a diverging debt to

0:06:54.200 --> 0:06:58.120
<v Speaker 2>GDP process, and that is I think very important. And

0:06:58.200 --> 0:07:01.880
<v Speaker 2>we saw it once the ceasefire in Lebanon happened and

0:07:02.040 --> 0:07:06.120
<v Speaker 2>the budget was approved. We saw the Israeli CDs, the

0:07:06.200 --> 0:07:13.520
<v Speaker 2>spread between the Israeli bond and US bond decline quite significantly.

0:07:13.800 --> 0:07:16.320
<v Speaker 1>As the economic advisor, how important is it for you

0:07:16.360 --> 0:07:18.200
<v Speaker 1>to see the war come to an end in order

0:07:18.240 --> 0:07:21.920
<v Speaker 1>to fortify an economy that has been hit by tourism

0:07:22.400 --> 0:07:25.680
<v Speaker 1>not being as robust as it has been in the past,

0:07:25.720 --> 0:07:29.440
<v Speaker 1>and questions around ongoing investments in bound despite some of

0:07:29.480 --> 0:07:30.360
<v Speaker 1>the tech investments.

0:07:30.440 --> 0:07:33.080
<v Speaker 2>Let me just say, obviously we all want the hostages

0:07:33.200 --> 0:07:39.520
<v Speaker 2>first and foremost. Coming back from an economic perspective, we

0:07:39.600 --> 0:07:44.000
<v Speaker 2>all understand that reducing uncertainty and having at the end

0:07:44.080 --> 0:07:49.440
<v Speaker 2>some kind of arrangements that provide for a sustainable, secure,

0:07:49.560 --> 0:07:54.480
<v Speaker 2>situation that will help the economy, not just Israel, the

0:07:54.560 --> 0:07:57.960
<v Speaker 2>region as a whole, and that will allow us to

0:07:58.880 --> 0:08:05.040
<v Speaker 2>direct also more energy towards items like education, infrastructure, and

0:08:05.240 --> 0:08:07.720
<v Speaker 2>enhance potential growth down the road.

0:08:08.560 --> 0:08:11.120
<v Speaker 1>Right now, the source of volatility seems to be the

0:08:11.200 --> 0:08:15.040
<v Speaker 1>United States more broadly at these meetings, and people are

0:08:15.080 --> 0:08:18.040
<v Speaker 1>grappling with all sorts of uncertainty shocks that you've dealt

0:08:18.040 --> 0:08:22.400
<v Speaker 1>with before in different capacities, And I'm just wondering whether

0:08:22.960 --> 0:08:26.400
<v Speaker 1>that's going to stress the Israeli economy as well, based

0:08:26.440 --> 0:08:29.200
<v Speaker 1>on the volatility and the gyrations in the US market

0:08:29.480 --> 0:08:33.000
<v Speaker 1>and this sense of lack of clarity around the US

0:08:33.160 --> 0:08:34.120
<v Speaker 1>role in all of this.

0:08:35.000 --> 0:08:38.160
<v Speaker 2>So, first of all, I think everyone understands that uncertainty

0:08:38.360 --> 0:08:43.280
<v Speaker 2>is weighing on the economy, the global economy, the US economy.

0:08:43.760 --> 0:08:48.959
<v Speaker 2>We saw the whipsaw in the stock market, Israel's pensions,

0:08:49.080 --> 0:08:53.760
<v Speaker 2>a lot of them are sitting in the in stock markets. Obviously,

0:08:53.800 --> 0:08:58.000
<v Speaker 2>our high tech industry is funded a lot by US

0:08:58.200 --> 0:09:03.040
<v Speaker 2>VC money. So to the extent that uncertainty weighs on

0:09:03.080 --> 0:09:08.080
<v Speaker 2>those two things, that is also directly affecting our economy

0:09:08.240 --> 0:09:11.640
<v Speaker 2>through that channel.

0:09:11.240 --> 0:09:12.920
<v Speaker 1>What do you get the sense of when you speak

0:09:12.960 --> 0:09:16.600
<v Speaker 1>to US representatives here, do you get some sense that

0:09:16.640 --> 0:09:18.680
<v Speaker 1>things are going to calm down anytime soon?

0:09:20.320 --> 0:09:24.679
<v Speaker 2>I don't know. I think the major issue is to

0:09:24.840 --> 0:09:31.280
<v Speaker 2>come to sustainable arrangements and to reduce the uncertainty as

0:09:32.480 --> 0:09:37.520
<v Speaker 2>fast as one as one can, and I think that

0:09:37.600 --> 0:09:42.280
<v Speaker 2>will help the economy both here and abroad.

0:09:42.640 --> 0:09:44.920
<v Speaker 1>Company, everyone, thank you so much for being with us today.

0:09:45.160 --> 0:09:48.360
<v Speaker 1>That was Governor Amir Na of the Israeli Central Bank.