Household interest expenses jumped by NIS 70b. a year

According to Alex Zabezhinsky, the chief economist of Meitav Investment House, the government can't meet the budget deficit target.

VARIOUS ISRAELI banknotes are displayed for an illustrative photo. The economy is well on its way to the pre-pandemic standards of budgetary discipline. (photo credit: NIR ELIAS/REUTERS)
VARIOUS ISRAELI banknotes are displayed for an illustrative photo. The economy is well on its way to the pre-pandemic standards of budgetary discipline.
(photo credit: NIR ELIAS/REUTERS)

The rise in interest rates in Israel over the past year will increase the annual interest expenses of households and companies by 60-80 billion shekels compared to the situation before the interest rate started to climb, Alex Zabezhinsky, the chief economist of Meitav Investment House, says.

Zabezhinsky is considered to be one of the most valued analysts in capital markets.

From April 2022, the interest rate has multiplied, and with it the interest rate on mortgages and the interest on overdraft, credit card payments and commercial loans.

The forecast of interest payments is based on the banks' reports for the fourth quarter of 2022, according to which customers' interest payments amounted to 24 billion shekels compared to about 11 billion in the fourth quarter of 2021 before the interest rate started to rise.

Considering the continuation of interest rate increases from the beginning of 2023, the increase in interest on payments compared to the situation before it started to rise will amount to 15-20 billion shekels per quarter or 60-80 billion per year.

 Illustration photo of the new 100 Israeli Shekel bill. December 31, 2017. (credit: NATI SHOHAT/FLASH90)
Illustration photo of the new 100 Israeli Shekel bill. December 31, 2017. (credit: NATI SHOHAT/FLASH90)

In GDP (gross domestic product) terms, this is a "deletion" from the funds that would have been available for more purchases or investments to the extent of 3.5%-4.5%. Against this backdrop and considering the decrease in tax revenues, zero or even negative growth is expected in the first quarter of 2023.

Critique of the state budget 

Zabezhinsky criticized the state budget, which is set to be approved by the end of May, and claims that the Treasury's assumptions are unrealistic. According to him, most economists believe that there's a need for an urgent update of the budgetary working assumptions, even before the finance committee approves the budget for a second and third reading.

Meitav states that the decrease in tax revenues indicates that the government won't meet the deficit target in the budget that hasn't even been approved yet. The decrease was partly caused by extremely high revenues last year. 

Also, the widening slowdown in economic activity will mean that real tax revenues will continue to fall to the long-term trend line. So even before the budget is approved, it's clear that the government won't meet the 1% deficit target in 2023, and the forecasts for 2024 also don't seem very relevant. The deficit will reach 3%, according to Zabezhinsky.

The housing market

Regarding the housing market, Zabezhinsky states that the drop in apartment prices is expected to increase even for second-hand apartments. As he recalls, in the March index apartment prices decreased by 0.2%.

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According to Meitav, it seems that the decrease in sales of newly-built apartments has halted and stabilized in recent months with a 6% drop in prices. Sellers of second-hand apartments are still trying not to lower prices. This is the reason that the number of transactions in this market segment has decreased faster than for new apartments. 


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But for many people who haven't sold their older, current home, with the rising cost of mortgages and the end of the period of exemption from the appreciation tax, they'll be forced to compromise and lower the price.