The Financial Stability Report for the second half of 2018 provides an assessment of the stability of the domestic financial system, based on an analysis of the environment in which the system operates—the macroeconomic environment, the asset markets, credit, and liquidity in the markets.  This assessment provides an indication of the various risks to the economy as a result of shocks in Israel and abroad.  The following are the main developments that took place during the reviewed period in the risks in the financial environment:

 

  •      The country’s credit risks declined due to the continued increase in economic activity and the continued decline in the ratio of government debt to GDP.  However, the existence of a structural deficit narrows the possibility of conducting an anti-cyclical fiscal policy, and may have a negative impact on the main factors that have been acting to lower credit risks.
  •      Developments in the global environment show an increase in the risks to the global economy, and indirectly to the Israeli economy.  The main risks are the weakness in the global debt market, and the trade war between the US and China, and the monetary tightening (mainly in the US) may worsen those risks.
  •       Real estate prices in Israel declined slightly, which strengthens the assessment that the trend of price increases has been halted.  The pace of building starts reacted to this rapidly, declining during the reviewed period, and it seems to be no higher than the increase in demographic demand dictates.
  •       The pace of expansion of credit in the economy increased during the reviewed period, mainly led by the business sector, thereby joining the prolonged upward trend in the pace of expansion of credit to households.  This trend exists even though the pace of expansion of non-housing credit declined from its high level of recent years.  Credit risks may increase in the coming years since changes were made to the legal environment regarding credit suppliers in Israel, and because the supply of credit may increase due to the many reforms to encourage competition in the credit market.
  •       Trading volume on the Tel Aviv Stock Exchange was low by international comparison, and the liquidity risks tend to increase due to the increase in passive investment and the wide-ranging algotrading activity on the Stock Exchange.​