Israeli Election Outcomes Could Shape Economy and Stock Market

IBI forecasts that a new government might enable interest rate cuts, whereas the continuation of the current coalition could prompt interest rate hikes of 0.5% to 1%. These shifts would have broad effects across sectors, particularly in banking and real estate. In the banking sector, which is entering the election period as the tailwind of high interest rates weakens, a rate decrease would shift the focus from interest revenue to credit growth, asset quality, and capital management. For income-generating real estate, a lower risk premium could decrease capitalization rates and increase asset values.

Regardless of the election outcome, the next Israeli government will face major fiscal challenges, including high defense spending and debt, with the debt-to-GDP ratio projected to remain around 70%. Political instability and repeated elections are also expected to deter investment. While some experts, such as Meitav chairman Avner Stepak, argue that global economic factors have a greater short-term effect than the government's composition, the market's reaction will ultimately depend on how the actual election results align with current expectations.