Israel’s Pesky Path Breaking Provocations
Israel stocks were down slightly into year-end as the US refused to vote against a UN resolution condemning West Bank settlements as the outgoing Obama administration assigned both sides blame for the failure of Palestinian dual state peace talks despite Secretary of State Kerry’s shuttle diplomacy frenzy. The incoming Trump team criticized the action and named hard-line supporters as Ambassador and special Mideast envoy while proposing Embassy relocation to Jerusalem. Prime Minister Netanyahu ignored the call as he continued with expansion of housing developments as a way to firm his party’s ideological base and offer alternatives to unaffordable urban real estate which has recently featured as a major campaign issue. Consumption-driven GDP growth topped 3 percent through Q3, and that pace should extend into 2017 with unemployment at an historic low 4.5 percent. The current account surplus will also continue above 3 percent of GDP without export restrictions to the US with a 30 percent share, manageable oil import costs and minimal 5 percent foreign investor bond market inflow reliance. Deflation is over and the strong shekel should cap inflation at 1 percent without the central bank raising rates despite the Federal Reserve’s projected path. Geopolitics and wage pressure could upset the mix, but fiscal policy provides room with the deficit under 3 percent of GDP after a VAT cut. The “A” credit rating is intact with public debt at 60 percent of output, and commercial and assistance-related fundraising considered accessible over the medium term. The Prime Minister’s Likud Party remains relatively unchallenged with the opposition coalition in disarray, and he has survived serial scandals including an investigation into his wife’s alleged personal and official spending overlap. The Labor Party has yet to reconstitute as a strong rival, and its absence was noted by international dignitaries attending the funeral of longtime stalwart and President S. Peres.
Lebanon was up 5 percent on the MSCI frontier index through December as the lengthy impasse over a new president ended with 80-year old former general Aoun, a Christian, taking the post with dominant Shia party Hezbollah’s consent. Palestinian and Syrian refugees cannot vote and the latest census put the Christian share of eligible participants under 40 percent. President Aoun named security and economic overhaul as chief priorities, with the eventual intent of repatriating 1 million Syrians after the civil war finishes and remedying chronic electricity and public service deficiencies. Traditional Gulf visitors have shunned the beaches and nightlife with their own troubles and cross-border spillover of factional conflict resurrecting ghosts of the 1990s period. Morocco after demotion to frontier status was ahead over 15 percent as the ruling Islamic party was snubbed in favor of the insurgent Modernists promising faster growth than the current 1 percent and 100,000 jobs and state debt restraint. With an IMF backup facility, the government in power since the Arab Spring appointed by King Mohammed pared the budget gap to 4 percent of GDP with energy subsidy adjustment. Democracy activists assert that the monarch still exercises pervasive control and that family cronies are not held accountable for poor performance and scandal. They also note that phosphate giant OCP has entered deals with other authoritarian regimes including a $3.5 billion venture just announced with Ethiopia where breakaway province unrest has been quashed.
