S&P: Political confrontation in Israel a risk to growth

“The controversial reform has led to sizable public protests, and, in our view, if government and opposition do not achieve an agreement on the topic, this could further exacerbate domestic political confrontation and weigh on medium-term economic growth,” S&P Global Ratings states in an special report released this evening on the Israel economy. The rating agency’s next rating announcement on Israel is due only in November, but the writes of today’s report provide an update on the consequences of the law passed by the Knesset this week abolishing the reasonableness standard in judicial review of ministerial and government decisions.

“In the short term, we expect that persisting political uncertainty will combine with weaker economic performance in Israel’s key trading partners in Europe and the U.S. as well as tighter monetary policy, causing Israeli economic growth to slow to 1.5% in 2023 from 6.5% in 2022,” the report states.

S&P Global Ratings currently gives an AA-/A-1+ sovereign rating to Israel with a “Stable” outlook. In its last rating announcement in May, S&P left the rating and outlook untouched, but stated concerning the government’s judicial overhaul plans: “Our basic scenario assumes that some sort of consensus will be created that will allow coping with the political tensions around the issue.”

The current report concludes by reiterating that “Israel’s credit strengths include its wealthy and diversified economy, its net external asset position, and the benefits that accrue from flexible monetary settings and a relatively deep pool of domestic savings.”

Published by Globes, Israel business news – en.globes.co.il – on July 27, 2023.

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