How will Peretz win impact economy?

Analyst: "The budget would be approved on time, and without election economics, so it would be a better, more serious budget."

By DANIEL KENNEMER, YIGAL GRAYEFF
November 10, 2005 23:19
3 minute read.
Labor leadership candidate Amir Peretz.

amir peretz 88. (photo credit: Courtesy)

The main influence Amir Peretz's election as head of the Labor Party could have on the economy stems from the likely moving up of elections, analysts said Thursday. "And that would actually be good," said Shlomo Maoz, chief economist at Excellence Nessua Securities Ltd. "The budget would be approved on time," he predicted, "and without election economics, so it would be a better, more serious budget. And the tense period leading up to the elections would be shorter." Leader & Co. analyst Jonathan Katz, however, predicted an "atmosphere of limbo" leading up to elections if Peretz withdrew from the coalition. He foresaw difficulty approving the 2006 budget. As for the long term, the markets are concerned that if Labor were to win the race, putting Peretz in a position to shape economic policy, he would backtrack on reforms, readjust fiscal targets, undo cuts to social spending, and increase taxation on the wealthy. Katz, however, said this remains an unlikely scenario given Prime Minister Ariel Sharon's apparent relative popularity. If, instead, a coalition headed by Sharon results, he believes that, most likely, no "radical changes" would be made, rather "just minor adjustments in spending" carried out within fiscal targets. "Previously, markets saw national coalition governments as positive. Now, seeing someone with more left-wing economic views - the flip side of Netanyahu - could agitate the market and that is cause for worry," Katz said. Nevertheless, Peretz's perceived activist zeal, or radicalism, as head of the Histadrut labor union in itself is not a cause for concern, Maoz suggested. "Ultimately, a person who receives a position becomes responsible," he said. Katz, however, remained cautious. "Of course, one could say that politicians become more moderate, less radical, once they find themselves in power and with responsibilities, but that needs to be seen," said Katz. Israel Manufacturers Association President Shraga Brosh affirmed that he does not anticipate a return to frequent drawn-out strikes as a result of Peretz's ascent, but called Peretz's proposal to raise the minimum wage in Israel to $1,000 monthly "disastrous." "It would lead to unemployment and cause many factories to move abroad. It would be impossible to provide workers with alternative employment," Brosh said, speaking on the sidelines of the Prime Minister's Conference on Exports and International Cooperation in Tel Aviv. Israeli stocks reacted negatively to news of the Peretz win but the Tel Aviv-25 index recovered somewhat in afternoon trade. According to Katz, this reflected market perceptions that chances are slim that Labor would be in a position to make economic policy. Bank of Israel Governor Stanley Fischer, meanwhile, contributed to market optimism while helping traders shrug off the "bad news" from the Labor Party by updating the Bank of Israel's 2006 GDP growth forecast to 4.3%.


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