Israel sets up 24-hour situation room to monitor Brexit effects

The TA-100, representing the largest 100 companies trading on the Tel Aviv Stock Exchange, opened down roughly 3% Sunday, the first day of trading following the UK referendum.

By NIV ELIS
Updated: JUNE 27, 2016 02:46
Tel Aviv stock exchange (photo credit: REUTERS)
Tel Aviv stock exchange
(photo credit: REUTERS)
Finance Minister Moshe Kahlon on Sunday said the Finance Ministry has set up a 24-hour “situation room” to keep tabs on economic repercussions from the United Kingdom’s vote to break from the European Union.
“We have a strong and stable economy that is prepared to deal with any scenario and challenge,” Kahlon said, noting that he was coordinating closely with Bank of Israel Governor Karnit Flug and Prime Minister Benjamin Netanyahu, with whom he met over the weekend to discuss the British exit, or Brexit.
The TA-100, representing the largest 100 companies trading on the Tel Aviv Stock Exchange, opened down roughly 3 percent at 1,203.1 on Sunday, the first day of trading following the referendum, and closed even lower at 1,199.5.
Netanyahu also sought to calm markets. “There is no direct affect on Israel apart from the fact that we are part of the global economy,” he said at Sunday’s cabinet meeting.
“I can say one thing: The Israeli economy is strong.
It has very considerable foreign currency reserves; therefore, to the extent that there is some impact, it is not expected to be strong, other than unrest in the global economy.”
A report from the Finance Ministry’s chief economist on Sunday estimated that the impact on Israel’s capital markets would be similar to the shocks of the 2012 euro crisis, which resulted in a 6.5% drop in local capital market indexes.
While many of the repercussions for Israel will be indirect, the EU is Israel’s largest regional trade partner. By country, the UK is its Israel’s second-largest export market (excluding diamonds), just behind the United States.
But the Finance Ministry analysis predicted that the overall affect on Israeli exports would amount to about 0.1%. It also said that, in the long run, the decision could be an opportunity for Israel since less competitive terms of trade between the UK and EU could create an opening for Israeli exporters to compete with British goods in the EU and European goods in the UK.
The British vote to leave the EU sent the British pound crashing and global stocks reeling, as it opened up a prolonged period of political and economic uncertainty. British Prime Minister David Cameron said he would step down, and would leave it to his successor to invoke Article 50 of the EU Lisbon Treaty, which sets off the process for its exit.
Article 50 will kick off a two-year process for the UK to renegotiate its trade relationship with the EU, though negotiations are expected to take longer, raising more questions as to what will happen at the end of the two-year deadline.
The UK also must redefine the trade agreements it has with all the countries it deals with as an EU member state – including Israel.
The shock of the Brexit vote is expected to decimate British growth for the year and possibly cause a recession, as well as afflict the already anemic economic growth within the European Union.
Credit ratings agency Moody’s lowered its outlook for the UK from stable to negative but maintained its sovereign rating at Aa1.
“During the several years in which the UK will have to renegotiate its trade relations with the EU, Moody’s expects heightened uncertainty, diminished confidence and lower spending and investment to result in weaker growth,” the agency said in its announcement.
“Over the longer term, should the UK not be able to secure a favorable alternative trade arrangement with the EU and other countries, the UK’s growth prospects would be materially weaker than currently expected.”
But Eldad Tamir, CEO of the Tamir Fishman investment group, said the event also was ripe with opportunity for investors, since stocks were cheap and bound to recover eventually.
“Keep calm and keep investing,” he advised.