Israel’s efforts to lower the cost of living are put on hold until after the next election.

JERUSALEM (Reuters) -During yet another election cycle, Israel’s economy is expected to stay strong, but households will suffer because reforms to lower the cost of living are likely to be put on hold and state spending will be cut until a budget for 2023 is approved.

This week, Prime Minister Naftali Bennett moved to get rid of parliament and call Israel’s fifth election in less than four years. This was done because fighting within the ruling coalition made it impossible for it to continue. The poll is likely to happen sometime between the end of September and the beginning of November. This means that policy will be stuck for months.

The dollar-shekel rate hasn’t changed much so far, which shows that the economy as a whole is strong enough to handle the now-familiar political turmoil.

Fixed capital investment and private spending are both going up, and after a slow start to the year, exports are expected to pick up.

Jonathan Katz, chief economist at Leader Capital Markets, said, “More political uncertainty isn’t great for the markets, but Israel has a lot of experience with this kind of thing.” “The biggest problem is that there aren’t any fiscal reforms or policies.”

Once a date for the elections is set next week, Foreign Minister Yair Lapid will be in charge of a caretaker government. Most of the time, it takes weeks after a vote for a coalition to come together.

“We now think that the government won’t be able to do as much to control inflation this year as in the past.” We think the Bank of Israel will feel more confident in fighting inflation with more force, “said Jessica Murray, an economist at JP Morgan.

At 4.1%, inflation is at its highest level in 11 years, but it is still lower than in most Western countries. The central bank has started to raise interest rates, but people are getting more angry about what they see as steep price increases for goods and services.

As a response, the government has planned reforms to increase the number of new construction projects and to expand a discount programme. These changes were meant to slow the rapid rise of property prices, which have been going up because demand is still higher than supply. It also said it would let more imports into the food and agriculture sectors instead of protecting local businesses. But these reforms and measures haven’t gotten final approval from parliament yet, so they won’t happen until at least next year.

Also likely to be put off are wage agreements in the public sector, a plan to raise the minimum wage, and spending on infrastructure projects in the public sector.

Citi economist Michel Nies said that putting projects on hold could have a long-term effect on Israel’s ability to grow and on its fiscal and monetary policies.

The 2023 budget vote, which was supposed to happen in November, will probably not happen until a new government is formed.

“The fall of the ruling coalition has had major effects.

increased Israel’s fiscal risks over the next few years, “said Deutsche Bank (ETR: DBKGn) economist Fatih Akcelik.

BALANCED BUDGET

The economy is helped by the fact that the government’s finances are improving. This year, tax revenue has gone up, which helped the government balance its budget in May.

“The fiscal position is one of consolidation, and this will continue through the election period and probably into next year,” Murray said.

Israel’s economy bounced back quickly after the COVID-19 crisis. It grew by 8.2% in 2021, and growth of 5% this year and 4% in 2023 is expected.

“The strong improvement in Israel’s balance of payments has made Israel’s economy less sensitive to political changes in the region,” said Tadas Gedminas, an economist at Goldman Sachs (NYSE:GS).

Amir Yaron, the governor of the Bank of Israel, said on Tuesday that the country’s institutional system lets the economy work well even when there are elections going on.

“The Israeli economy has shown a strong ability to grow and do well even in times of political and other kinds of uncertainty,” he said.