‘Economic earthquake’: Opposition lashes government after Moody’s downgrade
Opposition lawmakers assailed the governing coalition on Saturday after leading ratings agency Moody’s downgraded Israel’s economic outlook from positive to stable.
Yesh Atid party head Yair Lapid, the leader of the opposition, said the government was causing the country to “fall apart” and should announce immediately that its plans to dramatically overhaul the judiciary will be stopped.
In its decision, Moody’s cited the “deterioration of Israel’s governance” amid the government’s highly contentious effort, which critics warn will erode and even end Israel’s democratic system of governance.
“The announcement… is proof that the regime coup endangers the livelihood of every Israeli citizen. The lies and attempts to blame others will not help in this case,” Lapid tweeted.
“The facts are clear: The government I led handed them a strong and prosperous economy, and under the watch of [Prime Minister Benjamin] Netanyahu and [Finance Minister Bezalel] Smotrich, everything is falling apart,” Lapid said.
“They should announce that they are stopping the legislative madness, and that they will take care of the economy and the livelihoods of the country’s citizens,” the Yesh Atid leader said.
Late last month, Netanyahu announced a pause to the legislation to weaken the Supreme Court, as the coalition and opposition hold talks to try to achieve a consensus on judicial reform, but the premier also stressed that the effort would resume even if no agreements are reached.
Yisrael Beytenu head Avigdor Liberman, a former finance minister, said that the downgrade was an “economic earthquake,” and that Prime Minister Benjamin Netanyahu “is destroying the Israeli economy.”
“Just in April last year, when I was finance minister, Moody’s raised Israel’s outlook to positive, and I responsibly left the current government with a growing economy and a budget surplus of about NIS 10 billion NIS. And here after three months, we are on the verge of economic collapse,” Liberman said.
“The lack of care for the cost of living, the cheap populism, the promotion of personal interests and the priorities of Netanyahu and his government are costing you, the citizens of the country,” Liberman said.
Labor MK Naama Lazimi hit out at the “parade of false narratives” for the downgrade that were being circulated on social media by proponents of the overhaul.
“‘It’s the protesters’ fault’ — a lie, it’s the opposite; ‘You [the opposition] are happy about it — we are shocked, and we are just presenting the reality; ‘This is only one [ratings] company out of three’ — the trend is clear. ‘The economy is still stable’ — institutions are weakening, there is corruption, capital and investments are fleeing, social services are being reduced,” Lazimi wrote, calling on citizens to join the anti-overhaul protests on Saturday evening.
Labor lawmaker Efrat Rayten said that “hubris shut the ears and eyes of the leaders of the coup d’état,” adding that “even Netanyahu’s panicked and desperate phone call to the ratings agency failed to repair the enormous damage caused by this evil government.”
Channel 12 reported that in recent days, Netanyahu and President Isaac Herzog, who is hosting compromise talks on the overhaul, held urgent discussions with senior Moody’s officials in a bid to reassure the agency.
There was no public comment from National Unity leader Benny Gantz, whose party is also involved in the overhaul negotiations at the President’s Residence.
The rating agency report Friday confirmed fears that Israel’s credit outlook could be knocked down, as Moody’s had warned last month.
Weekly mass protests around the country against the government’s plans to weaken the judicial system have continued even after Netanyahu paused the legislation. Coalition members have vowed to press forward with the legislative push after the Knesset’s Passover recess.
On Friday, the agency said the change — which came just a year after Moody’s upgraded Israel’s credit outlook — “reflects a deterioration of Israel’s governance, as illustrated by the recent events around the government’s proposal for overhauling the country’s judiciary.”
“While mass protests have led the government to pause the legislation and seek dialogue with the opposition, the manner in which the government has attempted to implement a wide-ranging reform without seeking broad consensus points to a weakening of institutional strength and policy predictability,” Moody’s strongly worded eight-page report read.
While Israel’s credit outlook took a hit on Friday, the agency kept the country’s actual credit rating at A1, citing “strong economic growth and improving fiscal strength,” it said.
Israel’s economy, Moody’s said, “has proven resilient to many economic and geopolitical shocks over the past decades and has grown at a rapid clip, helped by Israel’s globally competitive high-tech industries. Moody’s baseline projections assume continued robust growth in the medium term.”
“The Israeli economy has grown at a rapid rate over the past several years, averaging 4.1% over the decade to 2022, helped to an important extent by the globally competitive and increasingly diversified high-tech industries,” it said.
Israel’s vaunted tech sector has long been touted as the main engine of Israel’s economic growth, accounting for 49% of total exports and generating around 15% of GDP in 2022.
It has been a key part of the opposition to the government’s judicial plans, with some firms moving significant funds abroad and threatening to relocate if democracy is harmed.
Moody’s warned Friday that Israel’s credit ratings could also come “under downward pressure if the current tensions were to turn into a prolonged political and social crisis with material negative impact on the economy, possibly linked to substantially lower capital inflows into the important high-tech sector and relocation of Israeli firms abroad.”
Moody’s said that while the Israeli government was indeed holding deliberations, it has also “reiterated its intention to change how judges are selected. This means that the risk of further political and social tensions within the country remains.” But should a compromise be reached “without deepening these tensions, the positive economic and fiscal trends that Moody’s had previously identified remain.”
Earlier this month, the OECD cautioned that the country’s pace of economic growth is expected to moderate, warning that “risks are skewed to the downside, related to high global and domestic uncertainty.” The organization sees GDP slowing from the 6.4% growth rate last year to 3% in 2023 and 3.4% in 2024.
On Friday, the release of the March consumer price index (CPI), a measure of inflation that tracks the average cost of household goods, showed an increase of 0.4% from February. CPI has been hovering above 5% in annual terms for the past six months, falling short of the government’s target range of 1% to 3%.
The rise in inflation came despite steps taken by the Bank of Israel to rein it in. The central bank has over the past year steadily hiked its benchmark interest rate from a record low of 0.1% last April to 4.5% earlier this month in a bid to bring down price growth.
Inflation has been slower to ease in part due to a weaker shekel, which is making imported goods more expensive. Since the beginning of this year, the local currency has depreciated about 4% against the US dollar. The US dollar index, which measures the greenback against six major world currencies, has declined about 2% since the start of 2023.
China’s economy is raising red flags across markets as rebound disappoints
Financial markets have been raising red flags recently about China’s economy, but analysts said Wall Street is missing the big picture.
Growth in the world’s second largest economy accelerated to 4.5% in the first quarter from 2.9% in the fourth quarter following the relaxation of COVID restrictions late last year.
But more recent data have pointed to slowing growth in retail sales as well as drops in home sales, industrial production and fixed-asset investment.
That disappointed investors hoping for a bigger post-COVID rebound and led Wall Street to trim its growth estimates for the full year. Worries about China’s economy have rippled through markets.
Earlier this month, the yuan fell past a psychologically important level of 7 per dollar for the first time this year. The price of copper, once expected to see sizable gains due to high demand from Chinese factories, hit a four-month low in mid-May.
Meanwhile, shares of luxury brands that are reliant on China’s consumer base, have started tumbling on stagnant activity.
Chinese equity markets were not immune to slowing performance, as the CSI 300 index continued to slip this week. At the end of April, declining hopes for added stimulus brought the Shenzhen and Shanghai indices down by $519 billion in one week alone.
The stalling performance prompted Rockefeller International’s Ruchir Sharma to call the rebound narrative a “charade.”
But for one analyst, the growing pessimism around China’s economy could stem more from unrealistically high expectations and Wall Street’s tendency to prioritize immediate metrics over long-term outlooks.
“I feel sorry for these people in some ways, because every time the Chinese release some data, they have to say something about it,” Nicholas Lardy of the Peterson Institute for International Economics told Insider.
Heightened anticipations may be due to China’s response to the 2008 financial crisis, when Beijing infused the economy with massive stimulus and achieved double-digit growth, Pantheon Macroeconomics’ Duncan Wrigley said.
However, it also led to a huge debt hangover that China has worked to resolve for much of the last decade. So while demand is slowing, limiting debt growth is equally prioritized by party leaders, he said.
The country set a more conservative 5% growth target in March, which both analysts see as achievable. Although the country will avoid full-scale stimulus to reach the goal, it has a number of tools to ensure growth keeps ticking upwards.
Despite its aim to limit debt, China could increase the availability of cheap loans to sectors in need, as well as lift the lending quota for the three main policy banks, while allowing them to invest in local projects, Wrigley said.
If this isn’t enough, he noted that the People’s Bank of China could ease financial conditions later in the year, such as decreasing the reserve requirement ratio for banks.
But youth unemployment remains high, while heightened geopolitical risk may deny China’s access to foreign technology.
And private investment, a major source of growth in China, has nearly collapsed in the past 15 months, Lardy said.
This may have to do with stringent regulation of Chinese business, as President Xi Jinping expands the role of the state in the market, dissuading business owners from investing in their firms, he said.
“That’s the one big negative factor that I worry about more than all the other things that we have talked about. Why is private investment so weak?” he said.
Quebec proposes making French mandatory for all economic immigration programs
Quebec Premier Francois Legault has proposed major changes to Quebec’s economic immigration criteria.
Speaking on May 25 with the Minister of Immigration, Francisation and Integration, Christine Frechette and the Minister of the French Language, Jean-François Roberge, Legault says the changes will ensure that nearly 100% of new economic immigrants to Quebec will know French before they arrive in the province by 2026. This is meant to promote Francophone economic immigration in Quebec.
“As we have seen for several years, French is in decline in Quebec,” said Legault. “Since 2018, our government has acted to protect our language, more than other successive governments since the adoption of Bill 101 under the Lévesque government. But if we want to reverse the trend, we must go further. By 2026, our goal is to have almost entirely Francophone economic immigration. We all have a duty, as Quebecers, to speak French, to transmit our culture on a daily basis, and to be proud of it.”
Discover if You Are Eligible for Canadian Immigration
Knowledge of oral French will be required for adults. This is meant to ensure that those who wish to settle in Quebec will be able to communicate in French throughout day-to-day interactions at work and in their communities.
The changes are part of a new permanent immigration program for skilled workers in Quebec. The province says the Skilled Worker Selection Program will “take into account the diverse needs of Quebec.”
Candidates in the program will be evaluated in four categories that have not yet been made clear, but the province says that three of the categories will require that the principal applicant and their accompanying spouse have knowledge of French.
There will also be revisions to existing programs. For example, the work experience requirement will be removed from the Quebec Experience Program for graduate students from a French-language study program.
Family reunification measures include making it mandatory for the guarantor to submit a plan for reception and integration that will support the learning of French for the person they are hosting.
Immigration is a shared responsibility between the federal and provincial governments. Quebec’s agreement is unique from other provinces in that it can select all its economic immigrants. Quebec does not have the authority to select family class sponsorship applicants or those who arrive in Canada as refugees or other humanitarian classes.
For 2023, Quebec has targeted that 65% of newcomers admitted to the province will be economic class.
Increasing immigration numbers in Quebec
The province is also considering raising the number of permanent selection admissions from 50,000 to 60,000 per year by 2027. This is in stark contrast to Legault’s recent comments that there was “no question” of Quebec accepting any rise in the number of newcomers and publicly rejecting the federal Immigration Levels Plan, which has a target of 500,000 permanent residents admitted to Canada each year by the end of 2025.
These changes also follow Quebec’s Immigration Levels Plan for 2023, where it was announced that the province would move away from plans that forecast only the coming year and begin introducing multi-year plans for immigration by 2024.
Why the changes?
Quebec is unique in Canada as it is the only province where French is the official language. The province is fiercely protective of its language, saying it is vital to protecting Quebec’s unique culture and status.
Legault is the leader of the Coalition Avenir Québec (CAQ) and is currently in his second term as Quebec’s premier, having been reelected last October. One of the main pillars of the CAQ party is to protect the French language in Quebec.
Immigration was one of the key issues in the recent election. Throughout his campaign, Legault said that Quebec would allow only 50,000 immigrants per year into the province as it would be difficult to accommodate and integrate more than that into Quebec society. He said that accepting more than that would be “a bit suicidal.”
Regardless, Quebec, like the rest of Canada, is experiencing a labour shortage as the population ages and the birth rate remains low. A report released last March by the Canadian Federation of Independent Business shows that the province could face an annual shortfall of up to nearly 18,000 immigrants, who would be able to fill Quebec’s labour needs.
Lira hits record low, but stocks rise after Erdogan win in Turkey
The Turkish leader won the presidency for a third time after a run-off vote on Sunday.
The Turkish lira has plunged to record lows after the re-election of President Recep Tayyip Erdogan, a sign that currency markets are not confident in the country’s economic future after the longtime leader’s re-election.
The Turkish currency weakened to 20.01 to the dollar on Monday after the high-stakes run-off a day earlier.
But Turkish stocks, on the other hand, rose as Erdogan entered a third decade in power with the benchmark BIST-100 index up 3.5 percent and the banking index rising more than 1 percent.
The lira fell to a record low as the country battles a cost of living crisis and depleted foreign reserves.
On the campaign trail, Erdogan pledged to slash inflation to single digits and boost economic growth, a message he reiterated in his victory speech late on Sunday. But analysts said his economic policies are unorthodox and predicted they will lead to more pain for Turks.
“In our view, Erdogan’s biggest challenge is Turkey’s economy,” Roger Mark, an analyst at the Ninety One investment management firm told the Reuters news agency. “His victory comes against a backdrop of perilous economic imbalances with his heterodox economic model proving increasingly unsustainable”.
Hasnain Malik, head of equity research at Tellimer, an emerging markets research firm, told the agency: “An Erdogan win offers no comfort for any foreign investor.”
“Only the most optimistic would hope that Erdogan now feels sufficiently secure politically to revert to orthodox economic policy,” he said.
Interest rate cuts sought by Erdogan sparked a devaluation of the Turkish lira in late 2021 and sent inflation to a 24-year peak of 85.5 percent last year. The president had argued that higher interest rates cause inflation while central banks around the world were raising rates to reduce price rises.
Turkey’s struggling economy, also reeling after the country’s devastating double earthquakes in February, was a major thorn in Erdogan’s prospect for re-election.
The leader has defended his economic policies, reassuring Turks that investment, production, exports and an eventual current account surplus will drive up Turkey’s gross domestic product.
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