Mizrahi Tefahot Bank Sees Mixed but Encouraging Economic Signals

Mizrahi Tefahot Bank's weekly economic review indicates a mixed but encouraging global and local economic picture. While both international and domestic economic activity show strong signs, including a surge in Israeli high-tech exports and significant job growth in the U.S., there's a notable slowdown in wage growth in both markets. This trend is easing inflation concerns and providing central banks with more flexibility in upcoming interest rate decisions.

In the U.S., August saw an addition of 162,000 jobs, primarily in leisure, hospitality, and education. Despite this employment increase, annual wage growth moderated to approximately 3.1%, alleviating some fears of labor market-driven inflation. Federal Reserve officials' rhetoric suggests a pause in interest rate hikes may be possible if inflation data remains stable.

Locally, Israel's job market remains stable for domestic workers, with a 1.2% increase in foreign workers helping to mitigate labor shortages. Similar to the U.S., Israel is experiencing a significant slowdown in average wage growth to 3.5%, contributing to reduced inflation worries. The Israeli high-tech sector continues to excel, with a 5.3% jump in service exports, adding $332 million in a single month. The strength of the shekel is helping to balance the current account despite a wide trade deficit.

Europe faces a more challenging macroeconomic environment, with preliminary August data showing inflation rising to 3.3%, largely due to energy price increases. However, core inflation, excluding energy and food, stands at 2.1%, close to the central bank's target. Despite this, the European Central Bank is expected to announce another interest rate hike this week, bringing the rate to 2.5%.