A new Israeli government was announced, and the international community and global markets wonder what would be the direction of Prime Minister Netanyahu following his impressive political victory. He was re-elected to a fourth term as a prime minister. It's the economy, stupid, and In Israel too.
The engine of Israel's economy is the high-tech industry, which is supported by solid economic fundamentals. The positive fiscal environment and the responsibility of the Central Bank will continue.
However, discussions on new economic policies in the energy sector, particularly in the natural gas production and distribution industry, have stalled.
Important strategic and economic agreements to sell natural gas from Israel's new gas discoveries to its Arab neighbors were canceled or suspended as a result of the recent political standstill during the election campaign. The turnabout was also triggered by a controversial decision by Israel's Antitrust Authority to break up Noble Energy and Delek Group's control of the Leviathan gas field. In light of internal and external pressure from private companies and senior officials, Netanyahu ordered a review of the Authority's decision.
Additionally, recent social unrest caused by high housing and food prices is also likely to force Israel's prime minister to open up many sectors -- housing, food and banking to competition. Lowering costs of living and increasing the supply of housing units would be critical.
Increasing competition by reducing bureaucracy and opening up local markets to imports calls for better cooperation from Netanyahu, his ministers and various groups in the civil sector, including labor unions and nongovernmental organizations. This could prove challenging, though, given the government's mixed track record in implementing long-term economic and social initiatives.
An earlier version appeared in Global Finance.