Despite the atmosphere of an impending global financial crisis, Israel has a stable and strong economy, Isaac Molho, managing partner and head of the firm at E.S. Shimron, I. Molho, Persky & Co (SMP) recently told The Jerusalem Post.
Molho along with partner Shai Ganor, who heads the firm’s hi-tech, venture capital and mergers and acquisitions practices, sat down with The Post to discuss inflation, the hi-tech industry, and the overall state of the Israeli economy.
The firm, established in 1953, is one of Israel’s oldest and most prestigious commercial law firms, with offices in Tel Aviv and in Jerusalem. Among its leading clients are foreign governments, major telecommunications companies, venture capital funds and private investors, public institutions and cutting-edge startups.
“There is a large and very special group of people – a slice of the Israeli population – that is able to spark innovation in many fields – even in art and music, and in theater – and mostly in technology,” Molho said. “Israel’s hi-tech industry is a real hi-tech industry.”
Nevertheless, recent months have seen massive layoffs, stock prices plummet, and company valuation decreases plaguing Israel’s hi-tech industry, leading to a sentiment of the “high tech bubble bursting.”
“This sense of catastrophe is somewhat exaggerated; it is mostly a matter of sentiment,” said Ganor.
According to Ganor, recent years have seen an abundance in Israel’s hi-tech industry; with many tech companies overvalued, some at billions of dollars, often with no real economic justification.
“We have to remember where we came from – we began from a high point, significantly high in some cases, not reflective of the true economic value and not based on any known economic models,” Ganor said. “This cannot be sustained over time and so, what is happening now is actually a correction.”
From a macro perspective, he added, such “corrections” are healthy for the economy in the long run.
He added that this period of excess coupled with the coronavirus pandemic, the Russian war in Ukraine, the inflation plaguing world economies, and the general sentiment that “it is almost time for the tech bubble to burst” all contributed to the current state of the tech industry.
“I think, and I hope that there is enough experience and maturity to see things in a broader perspective and understand that there will be ups and downs but that eventually the direction will change,” he said. “Humanity and technology will continue to move forward and there is still a lot of money and a lot of opportunities out there.”
Molho shared this sentiment, saying that while it is natural for there to be “ups and downs in the market,” the overall trajectory is still of an upwards trend.
“From our prism here in Israel, I don’t see a deep crisis,” he said. Though he cautioned that if the economic situation in the large economies will worsen it “will of course impact the Israeli economy as well.”
“Israel is an island in a sense, but it is connected to the entire world and when you see what is happening abroad, naturally this will have an impact here at home,” Molho said. “However, if you compare what is happening in Israel to the United States or other parts of the Western world, you understand that what is happening here, at least for now, is not so extreme.”
Yet, he said that this stems not from “the phenomena that are happening in the US and Europe, but rather the atmosphere that has developed in these economies.”
The global atmosphere, he explained, is one of increased costs of living, inflation, stock market slumps, and layoffs.
“When the atmosphere is like this across the board in the world - and we are tied to the big economies - to think that our economy won’t react is not rational,” Molho said. “So far though in Israel the impact is minimal, and we know how to handle it – but this requires government intervention.”
Ganor concurred that Israel is better off than most countries. “We have a reduction in national debt which is unique in the Western world, we have had very good years in hi-tech and we have revenues from the natural gas and growing military exports, so our basis is perhaps stronger than most.”
As such, Molho said the government has enough of a financial cushion to intervene to lower inflation and the rising cost of living in Israel.
“The Israeli government has the room to maneuver, and it must first and foremost deal with the rising prices,” he said. “If it doesn’t intervene, we may find ourselves in a situation like that of the larger economies.”
Molho explained that the government can reduce taxes on essential services like water, electricity, and transportation. “Take for example the prices of gasoline, much of this is taxation and during critical times the government can reduce the taxes.”
“I believe the government is trying to do what it can, but there needs to be very meaningful processes in the economy to combat this rising cost of living,” he added.
As such, the two partners remain optimistic for the future.
“What we are seeing now is the pendulum of the economy, the natural ups and downs," Molho said. “I do not think we are anywhere near the financial crises that we saw in the past.”
Ganor added: "Maybe I am too optimistic, there are problems that will affect the Israeli economy and hi-tech in the short term, but I don't sense a catastrophe."
"Economy is 80% psychology, so once you get over the atmosphere of crisis and see that the world is still here, the hi-tech industry is still here, the economy is still here, it will slowly start to rebound," he said.
This article was written in cooperation with E.S. Shimron, I. Molho, Persky & Co