Mizrahi Tefahot Bank Warns of Potential Recession Amid Global Economic Shifts

Yoni Pening, chief strategist at Mizrahi Tefahot Bank's trading room, presented a weekly economic review highlighting significant global and Israeli economic developments. In the United States, Pening noted that aggressive monetary policies by central banks are moderating the steepness of global yield curves. While current U.S. yield curves are still high historically, they are approaching levels seen in pre-recessionary periods. Despite this, U.S. economic activity indicators remain robust, with retail sales increasing in August. However, rising energy prices coupled with a lack of general price increases suggest a potential, albeit possibly manufactured, concern about future inflation.

Regarding Israel, Pening discussed the impact of fuel price reductions, estimating a potential 0.3% inflationary effect from this factor, influenced by political considerations. He analyzed the local labor market, which appears tight based on August data, but suggested this might be partly due to seasonal factors like holiday travel. Pening anticipates potential expansion in the available workforce for the private sector. He also pointed to a continued current account deficit in Israel for the second consecutive quarter and a widening trade deficit through August, attributing these partly to energy prices and global AI capital expenditures, with expectations of a significant correction.

In the United Kingdom, Pening observed that inflation data reflects rising energy prices, similar to 2022, with a slight lag in electricity prices due to delayed price fixing. While the Bank of England refrained from raising interest rates, Pening characterized its stance as hawkish, focusing on preventing a significant rise in long-term yields.