Israeli Economy Faces Tech Crisis Risk, Expert Warns
Translated & summarized from Calcalist by baba
Amir Kahnovich, Chief Economist at Profit, warned that Israel's heavy reliance on the high-tech sector creates a significant risk of economic crisis. He noted that while tech drives growth and exports, a downturn could devastate employment, investment, and savings, citing the early 2000s dot-com bubble as a precedent. Kahnovich urged both the private sector and households to diversify investments and save for potential future economic shocks.
The story in 5 lines · by baba
- Israel's economy faces significant risk from a potential crisis in its dominant high-tech sector, warns economist Amir Kahnovich.
- A tech downturn could severely impact Israeli exports, employment, foreign investment, and household savings, Kahnovich stated.
- The economy is now twice as exposed to the tech sector as it was during the early 2000s dot-com crisis.
- Kahnovich urged diversification of investments at both national and household levels to mitigate future economic shocks.
- Boycotts on finished goods have pushed Israel towards technology development, increasing sector dependence.
Amir Kahnovich, Chief Economist and Deputy CEO of the Profit financial group, warned that Israel's reliance on the high-tech sector, while driving growth, also poses a significant risk of economic failure. Speaking at the Tech1 conference, Kahnovich highlighted that a crisis in the tech market could severely impact Israel's economy, a concern often overshadowed by discussions about artificial intelligence's effect on employment.
Kahnovich noted Israel's economic achievements, with GDP expected to rise by 5% in dollar terms, potentially moving the country to 13th or even 9th globally. He attributed much of this success to the high-tech industry's contribution to growth and exports, pointing to over 400 international R&D centers in Israel. He suggested that boycotts on Israeli finished products push the country towards technology development, allowing its innovations to be integrated into products from other nations, citing everyday items like cars and computers containing Israeli technology.
However, this focus on technology increases the economy's dependence on a single sector. Kahnovich cautioned that a tech crisis could harm Israel's exports, employment, foreign investment, and household savings. He drew a parallel to the early 2000s dot-com crisis, when the tech sector's share of the workforce was 6% and exports were 28%. Today, these figures have doubled, making the economy far more vulnerable. During that past crisis, unemployment in Israel surged to 12%, and the Bank of Israel raised interest rates to 11% to prevent a currency collapse.
To mitigate this risk, Kahnovich suggested learning from countries like Norway, which established a sovereign wealth fund from oil and gas revenues, investing diversely abroad. He noted that Israel cannot replicate this model because its tech companies and revenues are private, unlike Norway's state-owned resources. Therefore, Kahnovich stated, the private sector bears responsibility for saving excess revenues and diversifying investments to prepare for a potential downturn.
Kahnovich emphasized that the risk extends beyond tech companies and their employees to every Israeli household, affecting savings invested in tech-heavy U.S. stock indices like the S&P 500 and Nasdaq. He urged diversification across sectors and countries, referencing Amazon founder Jeff Bezos's acknowledgment that even successful companies eventually decline. Kahnovich concluded that proactive preparation is crucial at both the national and family levels to minimize damage from future crises.
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