April 25, 2025 • 9 mins
Israel's Central Bank Governor Amir Yaron speaks to Bloomberg's Lisa Abramowicz about the economic uncertainties from the global trade war and the ongoing conflict with Hamas, highlighting the dual pressures on Israel's economy amid rising geopolitical tensions
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news. We are here at
the IMF with the Bank of Israel Governor Amir your own,
who is also the economic advisor to the Israeli government
governing your own. Thank you so much for being here
with us. What a week. It has been quite a
different IMF week than usual. What's been your takeaway so.
Speaker 2 (00:24):
Far, Lisa, thank you for having me. I think it's
clear uncertainty. The global economy seeing exceptional uncertainty. You know,
most of the implications are that global trade will decline
with it, global growth with declient make probably some tack
(00:44):
up in inflation in the US. But the implications are
far from clear. A lot of it will depend on
what the final situation in terms of tariffs will be,
what they're the duration of the uncertainty. But the word
uncertainty is everywhere, and that's the key thing. That uncertainty
(01:04):
in itself is weighing in on economy and on decision makers,
whether it's companies, whether it's households, investments, and on sentiment.
Speaker 1 (01:16):
Earlier this year, you talked about it being very achievable
for the Israeli inflation rate to get down between that
one and three percent range this year. It's not that
far away from it right now. Do you feel like
we're still on a path. You're still seeing a path
in Israel to that inflation rate enough to cut rates
even twice later this year.
Speaker 2 (01:36):
So we've grown two percent in twenty three and one
percent in twenty four, kind of quite a bit below
our our potential, which is around four percent, but the
Israeli economy has demonstrated great resiliency, enduring and an immense
shock that we have. We predict that we will grow
(01:57):
around three and a half and about four and a
half percent in twenty five and twenty six, respectively, and
this is after shaving a half percent due to tariffs
Israel If I just say Israel's is exposed to the tariffs,
but our primary because most of our exports are in
the services, our primary focus and the way it can
(02:18):
affect us is through the decline in global trade and
if we see stock markets sustainably low, also through VC
investment into our high tech area. In terms of the
inflation and your question, we've had excess demand basically because
of labor shortages. We've seen active demand and we need
(02:39):
that process to come into balance. We see that process
has started. We predict it will come into balance in
the second half of the year, and with it, inflation
will also continue to subside into our target, and we
penciled in if that happens, we will be able to
do somewhere like around two cuts. That's what the Search
(03:00):
Department penciled in, two cuts by within a year from now.
But I want to emphasize we are in a great
uncertainty is very high, not just because of tariffs. We
have our own geopolitical risk surrounding us, and therefore we
are very data dependent. If we see this process moving faster,
(03:22):
that is inflation decelerating faster, but we want to see
inflation sustainably getting into the target, we can move faster.
But on the other hand, if we see inflation sticky
and we as market turmoil is happening, we see the
shekel depreciate has depreciated, that has an effect on inflation,
(03:45):
and if inflation in the US rises, we import some
of that inflation. So there's a lot of risks that
are tilted up, and if we see inflation stickier, we
will have to be restrictive for a longer period.
Speaker 1 (03:59):
You know, it's amazing because most Central banks here when
I talk about the immense shock, they're talking about tariffs.
For you, it's different. There is a war going on.
It is the Israel War in Gaza, and there's a
real question here about how long it will go on.
There was a feeling earlier this year that it was
dying down. Now it seems to be inflaming once again.
How much does that sort of set back some of
(04:20):
these goals of getting people back to the workforce not
necessarily deployed elsewhere.
Speaker 2 (04:25):
So the numbers that I've stated assume that we are
going to be in the coming months in the current
level of reserve usage and that will decline over time
again in the second half of the year, and that
will alleviate some of that labor shortage that we've talked about.
We have in our forecast. Also what happens if we
(04:48):
see farther escalation that goes on in Gaza, that goes
on for another six months and bigger usage of reserves
and there we shave an additional half percent of GDP growth.
That's kind of the two scenarios that we've outlaid. But
even around those, you can imagine there are many, many
(05:11):
other configuration that one can face.
Speaker 1 (05:13):
You also are the economic advisor to the government, and
I'm sure there are a lot of conversations about how
to sustainably keep financing ongoing munitions, ongoing defense efforts, given
that it is an uncertain time and given some of
the pressures on the economy. You've made the case that
it's important to cut spending rather than simply do this
(05:34):
by debt financing. Why is that so important to you
given the fact that this is a crisis and it
is likely to be ongoing.
Speaker 2 (05:42):
A Israel is in a situation as you just mentioned,
we have a lot of uncertainty that is very related
beyond tariffs to the ongoing conflict, and that requires spending,
and we want to demonstrate to the world that we
continue to have responsible fiscal standing. And that amounts to
(06:04):
basically allow even if you allow debt to GDP rise
in the current year because of the war, you want
to have a credible trajectory that it hasn't inverted u
shape and it comes down. And you got to give
the government credit as it did fiscal consolidation of one
percent in the twenty twenty four budget and one and
(06:26):
a half percent consolidation in the twenty twenty five budget
basically according to the Bank of Israel, consistent with the
Bank of Israel's recommendation. And of course whether we need
to do more down the road will depend also on
the geopolitical events and whether how far more will military
(06:47):
spending need to be. But at least right now we
can say we do not have a diverging debt to
GDP process, and that is I think very important. And
we saw it once the ceasefire in Lebanon happened and
the budget was approved. We saw the Israeli CDs, the
spread between the Israeli bond and US bond decline quite significantly.
Speaker 1 (07:13):
As the economic advisor, how important is it for you
to see the war come to an end in order
to fortify an economy that has been hit by tourism
not being as robust as it has been in the past,
and questions around ongoing investments in bound despite some of
the tech investments.
Speaker 2 (07:30):
Let me just say, obviously we all want the hostages
first and foremost. Coming back from an economic perspective, we
all understand that reducing uncertainty and having at the end
some kind of arrangements that provide for a sustainable, secure,
situation that will help the economy, not just Israel, the
(07:54):
region as a whole, and that will allow us to
direct also more energy towards items like education, infrastructure, and
enhance potential growth down the road.
Speaker 1 (08:08):
Right now, the source of volatility seems to be the
United States more broadly at these meetings, and people are
grappling with all sorts of uncertainty shocks that you've dealt
with before in different capacities, And I'm just wondering whether
that's going to stress the Israeli economy as well, based
on the volatility and the gyrations in the US market
(08:29):
and this sense of lack of clarity around the US
role in all of this.
Speaker 2 (08:35):
So, first of all, I think everyone understands that uncertainty
is weighing on the economy, the global economy, the US economy.
We saw the whipsaw in the stock market, Israel's pensions,
a lot of them are sitting in the in stock markets. Obviously,
our high tech industry is funded a lot by US
(08:58):
VC money. So to the extent that uncertainty weighs on
those two things, that is also directly affecting our economy
through that channel.
Speaker 1 (09:11):
What do you get the sense of when you speak
to US representatives here, do you get some sense that
things are going to calm down anytime soon?
Speaker 2 (09:20):
I don't know. I think the major issue is to
come to sustainable arrangements and to reduce the uncertainty as
fast as one as one can, and I think that
will help the economy both here and abroad.
Speaker 1 (09:42):
Company, everyone, thank you so much for being with us today.
That was Governor Amir Na of the Israeli Central Bank.
Bloomberg Audio Studios, podcasts, radio news. We are here at
the IMF with the Bank of Israel Governor Amir your own,
who is also the economic advisor to the Israeli government
governing your own. Thank you so much for being here
with us. What a week. It has been quite a
different IMF week than usual. What's been your takeaway so.
Speaker 2 (00:24):
Far, Lisa, thank you for having me. I think it's
clear uncertainty. The global economy seeing exceptional uncertainty. You know,
most of the implications are that global trade will decline
with it, global growth with declient make probably some tack
(00:44):
up in inflation in the US. But the implications are
far from clear. A lot of it will depend on
what the final situation in terms of tariffs will be,
what they're the duration of the uncertainty. But the word
uncertainty is everywhere, and that's the key thing. That uncertainty
(01:04):
in itself is weighing in on economy and on decision makers,
whether it's companies, whether it's households, investments, and on sentiment.
Speaker 1 (01:16):
Earlier this year, you talked about it being very achievable
for the Israeli inflation rate to get down between that
one and three percent range this year. It's not that
far away from it right now. Do you feel like
we're still on a path. You're still seeing a path
in Israel to that inflation rate enough to cut rates
even twice later this year.
Speaker 2 (01:36):
So we've grown two percent in twenty three and one
percent in twenty four, kind of quite a bit below
our our potential, which is around four percent, but the
Israeli economy has demonstrated great resiliency, enduring and an immense
shock that we have. We predict that we will grow
(01:57):
around three and a half and about four and a
half percent in twenty five and twenty six, respectively, and
this is after shaving a half percent due to tariffs
Israel If I just say Israel's is exposed to the tariffs,
but our primary because most of our exports are in
the services, our primary focus and the way it can
(02:18):
affect us is through the decline in global trade and
if we see stock markets sustainably low, also through VC
investment into our high tech area. In terms of the
inflation and your question, we've had excess demand basically because
of labor shortages. We've seen active demand and we need
(02:39):
that process to come into balance. We see that process
has started. We predict it will come into balance in
the second half of the year, and with it, inflation
will also continue to subside into our target, and we
penciled in if that happens, we will be able to
do somewhere like around two cuts. That's what the Search
(03:00):
Department penciled in, two cuts by within a year from now.
But I want to emphasize we are in a great
uncertainty is very high, not just because of tariffs. We
have our own geopolitical risk surrounding us, and therefore we
are very data dependent. If we see this process moving faster,
(03:22):
that is inflation decelerating faster, but we want to see
inflation sustainably getting into the target, we can move faster.
But on the other hand, if we see inflation sticky
and we as market turmoil is happening, we see the
shekel depreciate has depreciated, that has an effect on inflation,
(03:45):
and if inflation in the US rises, we import some
of that inflation. So there's a lot of risks that
are tilted up, and if we see inflation stickier, we
will have to be restrictive for a longer period.
Speaker 1 (03:59):
You know, it's amazing because most Central banks here when
I talk about the immense shock, they're talking about tariffs.
For you, it's different. There is a war going on.
It is the Israel War in Gaza, and there's a
real question here about how long it will go on.
There was a feeling earlier this year that it was
dying down. Now it seems to be inflaming once again.
How much does that sort of set back some of
(04:20):
these goals of getting people back to the workforce not
necessarily deployed elsewhere.
Speaker 2 (04:25):
So the numbers that I've stated assume that we are
going to be in the coming months in the current
level of reserve usage and that will decline over time
again in the second half of the year, and that
will alleviate some of that labor shortage that we've talked about.
We have in our forecast. Also what happens if we
(04:48):
see farther escalation that goes on in Gaza, that goes
on for another six months and bigger usage of reserves
and there we shave an additional half percent of GDP growth.
That's kind of the two scenarios that we've outlaid. But
even around those, you can imagine there are many, many
(05:11):
other configuration that one can face.
Speaker 1 (05:13):
You also are the economic advisor to the government, and
I'm sure there are a lot of conversations about how
to sustainably keep financing ongoing munitions, ongoing defense efforts, given
that it is an uncertain time and given some of
the pressures on the economy. You've made the case that
it's important to cut spending rather than simply do this
(05:34):
by debt financing. Why is that so important to you
given the fact that this is a crisis and it
is likely to be ongoing.
Speaker 2 (05:42):
A Israel is in a situation as you just mentioned,
we have a lot of uncertainty that is very related
beyond tariffs to the ongoing conflict, and that requires spending,
and we want to demonstrate to the world that we
continue to have responsible fiscal standing. And that amounts to
(06:04):
basically allow even if you allow debt to GDP rise
in the current year because of the war, you want
to have a credible trajectory that it hasn't inverted u
shape and it comes down. And you got to give
the government credit as it did fiscal consolidation of one
percent in the twenty twenty four budget and one and
(06:26):
a half percent consolidation in the twenty twenty five budget
basically according to the Bank of Israel, consistent with the
Bank of Israel's recommendation. And of course whether we need
to do more down the road will depend also on
the geopolitical events and whether how far more will military
(06:47):
spending need to be. But at least right now we
can say we do not have a diverging debt to
GDP process, and that is I think very important. And
we saw it once the ceasefire in Lebanon happened and
the budget was approved. We saw the Israeli CDs, the
spread between the Israeli bond and US bond decline quite significantly.
Speaker 1 (07:13):
As the economic advisor, how important is it for you
to see the war come to an end in order
to fortify an economy that has been hit by tourism
not being as robust as it has been in the past,
and questions around ongoing investments in bound despite some of
the tech investments.
Speaker 2 (07:30):
Let me just say, obviously we all want the hostages
first and foremost. Coming back from an economic perspective, we
all understand that reducing uncertainty and having at the end
some kind of arrangements that provide for a sustainable, secure,
situation that will help the economy, not just Israel, the
(07:54):
region as a whole, and that will allow us to
direct also more energy towards items like education, infrastructure, and
enhance potential growth down the road.
Speaker 1 (08:08):
Right now, the source of volatility seems to be the
United States more broadly at these meetings, and people are
grappling with all sorts of uncertainty shocks that you've dealt
with before in different capacities, And I'm just wondering whether
that's going to stress the Israeli economy as well, based
on the volatility and the gyrations in the US market
(08:29):
and this sense of lack of clarity around the US
role in all of this.
Speaker 2 (08:35):
So, first of all, I think everyone understands that uncertainty
is weighing on the economy, the global economy, the US economy.
We saw the whipsaw in the stock market, Israel's pensions,
a lot of them are sitting in the in stock markets. Obviously,
our high tech industry is funded a lot by US
(08:58):
VC money. So to the extent that uncertainty weighs on
those two things, that is also directly affecting our economy
through that channel.
Speaker 1 (09:11):
What do you get the sense of when you speak
to US representatives here, do you get some sense that
things are going to calm down anytime soon?
Speaker 2 (09:20):
I don't know. I think the major issue is to
come to sustainable arrangements and to reduce the uncertainty as
fast as one as one can, and I think that
will help the economy both here and abroad.
Speaker 1 (09:42):
Company, everyone, thank you so much for being with us today.
That was Governor Amir Na of the Israeli Central Bank.
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