The ongoing controversy surrounding the reform of the judicial system increases feelings of uncertainty and risk of damage to Israel's economic growth, according to the S&P Rating Agency, who presented their findings in a report last Thursday.
According to the report, internal polarization in Israel is expected to remain high following the approval of the first part of the legal reform.
"If the government continues to enact the reform without the consent of the opposition, this could further exacerbate the internal conflict in Israel and weigh on economic growth in the medium term," the report stated.
In the short term, the agency expects that the ongoing political uncertainty and the weaker economic performance recorded in Israel as compared to Europe and the United States, will lead to a tighter monetary policy. According to S&P, this will result in slow economic growth from 6.5% in 2022 to 1.5% in 2023.
In the report, the agency justified its assessment: "The credit ratings we conducted on Israel's economy in the past were always affected by political and security risks. Israel has a history of frequent elections and changes of government, which makes it difficult to predict economic policy.”
“Nevertheless, we do not expect the political or regional risks to escalate into a significant internal conflict or ongoing armed conflict in Gaza or the West Bank. Israel's credit strengths include its rich and diverse economy and a relatively deep pool of private savings," the report continued.
S&P's critical report joins a number of responses by international economic organizations to the reform of the judicial system. On Tuesday, the credit rating agency Moody's issued a severe warning following the political situation in Israel, but has not yet lowered the credit rating.
Additionally, a number of banks from the United States reclassified Israel as a non-recommended for investment, and pointed to "continued uncertainty and the possibility of an upheaval in the markets.”
This article was translated from Hebrew by Noah Mirkin.
