Stockholm (Ekonamik) – Early exit polls from the Israeli election are showing a dead heat between Prime Minister Benjamin Netanyahu and his main opponent, Blue and White party leader Benny Gantz, with 36 seats in the 120-seat Knesset so far expected to be apportioned to Mr Netanyahu and 37 to Mr Gantz. The determining votes are likely to come from the right wing parties that Mr Netanyahu is expecting to form a coalition with, giving Mr Netanyahu the support of 64 members to Mr Gantz’s 56, according to two of the three first exit polls.
Both candidates were quick to declare victory, though a third poll declared the race too close to call and the final tally depends on counting votes from the military and Israelis abroad, and will take a few days. The electoral math, though, still favours Mr Netanyahu, though the likely failure of several possible coalition partners to cross the 5% threshold to enter the Knesset means he will have to reach out further to far-right and religious parties. This, in turn, is a recipe for political instability, with a likely coalition of Likud and five other smaller parties and a country largely split down the middle. In a way, Mr Netanyahu may have won the war (while losing the battle), but at a likely high cost.
Economic issues were not front and centre until the waning days of the election, as opposed to in the previous two elections in 2013 and 2015, where socioeconomic issues were a central feature of many parties’ campaigns and led to the creation of new parties altogether. Instead, the issues dominating the campaign have been mostly focused on personality, from Mr Netanyahu’s preliminary indictment and various scandals to the largely political and economic blank slate presented by his main opponent Mr Gantz, which Mr Netanyahu has been able to leverage in framing economic arguments. The conflict in Gaza has also recently gained more prominence in the campaign: security is normally the top issue in any Israeli election.
Source: OECD Economic Outlook Database
Israel’s economy has been doing relatively well. Mr Netanyahu’s Likud party has been able to point to a reduction in the poverty gap and a sharp rise in the average wage (real average wages rose by 4% from February through April, following a 3.8% increase from November through January). The average Israeli has seen a rise in the standard of living over the past decade while Mr Netanyahu has been in power: Israel’s GDP has increased by 70% in this period despite very little trade with its immediate neighbours but booming trade globally, alongside a decline in inequality, the increase in the average salary and relatively low unemployment. GDP grew 3% in Q4 2018, driven by an increase in private consumption.
Nevertheless, the Bank of Israel cut its economic growth forecast Monday, citing a darkening global outlook, a possible slowdown in the labour market and the uncertainty about future government policy ahead, but held its benchmark interest rate steady, at 0.25%. Analysts expected the bank to stay in a holding pattern for the next few decisions (the next one is on May 20), but it has plans to raise rates gradually to stabilise inflation and economists expect an interest rate rise in Q3 2019. Israel’s central bank cut growth forecasts for 2019 from 3.4% to 3.2% amid expectations that exports would underperform in the slowing global economy.
The Tel Aviv Stock Exchange’s main indexes opened up 0.5% Wednesday morning following expectations that Mr Netanyahu had indeed won another term, reflecting investor expectations. Equities markets and the shekel remained stable, with short-term volatility in both following the calling of the election last December replaced by steady gains. Investors appear to prefer that the economy remain in Mr Netanyahu’s hands, as it likely will.