TASE unmoved by Olmert resignation

Nevertheless, analyst expresses concern new Kadima leadership may weaken fiscal discipline by offering incentives to parties to help form new coalition.

tase building 88 298 (photo credit: Courtesy  Photo)
tase building 88 298
(photo credit: Courtesy Photo)
The local financial market was largely unfazed on Thursday by Prime Minister Ehud Olmert's announcement that he will step down, but some analysts expressed concern about the economic impact. "We expect little to no material impact from Prime Minister Olmert's announcement to resign, as this was widely anticipated by market players," Merrill Lynch analyst Haim Israel said. "Embattled by corruption allegations and police investigations, it was only an issue of time, in our view, before Olmert would throw in the towel. "Likewise, we see little to no direct implications from either economic or financial perspectives. The economy is running on auto pilot." Similarly, Darren Shaw, an analyst at UBS Investment House, said few were surprised by Olmert's move, adding that the market would largely ignore it for now. "In fact, what we consider to be more important is the New York Stock Exchange and Nasdaq's strong performance on Wednesday, which should help the Tel Aviv Stock Exchange perform positively," he said. "That being said, there is a small chance that the new Kadima leadership could weaken fiscal discipline by offering incentives to other parties to help form a new coalition, which could be negative for the economy," he added. Shaw said even if elections are avoided over the next few months, a government under a new Kadima prime minister is unlikely to last long, and therefore elections can be expected within a year. "If new elections are to take place, based on local polls, we believe the next prime minister is most likely to be the Likud's Binyamin Netanyahu, which we view as positive for the economy and stock market," Shaw said. Merrill Lynch's Israel said there had been no real effect on fiscal discipline. "However, chances that the budget will be approved on time [December 31] have decreased," he said. "For now, the budget will be based on the 2008 budget, which will result in fiscal discipline and reduced fears of a widening deficit." Nonetheless, Israel expressed concern that economic reform was likely to be put on hold for a while as Olmert could remain prime minister until the beginning of November, and as head of a caretaker administration for an additional three months if the new Kadima leadership fails to form a government. "We expect no new government before November, and national elections not before March 2009," he said. "A caretaker government is not likely to make earth-shattering decisions putting structural reforms on hold, [thereby] affecting companies."