While you were out (Hamodia, October 31)
Israeli commercial life has been getting back to ‘normal’ — insofar as there is such a state of affairs here — after a series of disruptions stretching over several months.
Yet while Israeli businesses stood partially or completely closed, whether for unhappy or happy reasons, doesn’t mean that the world has stood still and waited for them.
On the contrary, as people returned to full-time work in the second half of October, they found that the business environment both at home and abroad was quite different from June — the last time ‘normal’ conditions pertained.
For some, these changes have been nothing short of disastrous. Arad Textiles (aka Arad Towels), a long-established company in the Negev which used to be profitable but has been gradually down-sizing, has now closed entirely — which is a major blow to Arad as a whole, not merely to the people who are losing their jobs. Nor is it a special case. On the contrary, what seemed to make it special was that it remained successful long after most Israeli textile companies had closed down or moved overseas. Now it, too, has succumbed.
Moving from the micro level of individual companies and the households dependent on them, to the macro level, the current focus is on the 2015 budget proposal. As this column noted a few weeks back, there is little good news in the budget. Indeed,
given the background of slowing global growth, the assumptions underpinning the budget seem overly optimistic and the promises being made — notably that there will be no tax increases — are, to say the least, suspect.
Yet the businessman, employee or investor struggling to resume ‘normal’ activity will find two key economic developments that are strongly positive. The first is the sharp drop in the price of oil. Israel, as a consuming country — which it is and will remain, despite the offshore gas finds — is a major beneficiary of the 20% or more decline in the price of ‘black gold’.
Of course, it might not last, but then again perhaps it will. No-one predicted six months ago that this where we would be and, now that we’re here, there are umpteen explanations of how we got here and where we might go next. Meanwhile, filling a tank and generating electricity cost much less, so people have more money for other things — while Iran, Saudi, Russia and Venezuela are hurting, so what can be bad?
The other change is more important and with much wider impact. In July, the rising trend in the value of the Israeli shekel peaked and since then, its value has fallen sharply. After rising steadily for most of 2013 and the first half of 2014, the shekel reached a value of NIS3.4 to the US dollar and seemed to be repeating its performance in 2008, when it reached 3.35 and eventually 3.23, before massive intervention by the Bank of Israel pushed it down.
This year, the central bank’s efforts may have slowed its rise, by they clearly weren’t stopping it. Yet after trying three times during July to get past 3.4, something snapped and the shekel turned round and headed rapidly lower (in value; the price was ‘higher’ — 3.50, 3.60 and 3.70 — but that means the value per dollar was lower).
For the Israeli economy, this is a game-changer. What’s more, the shekel did not fall only against the dollar — which would simply mean that the dollar was getting stronger, but wouldn’t tell us anything about the shekel. In fact, especially in October, the shekel has fallen against all the major currencies, even as the euro, yen, etc. have dropped against the greenback.
Why this has happened and, even more importantly, why it is such good news — as well as what to expect further — will be discussed in future columns. For the moment let’s just say that if this had happened last year, Arad Textiles probably would not have had to fold.