Credit rating agency S&P warns lack of overhaul consensus imperils Israeli economy

Credit rating agency Standard & Poor’s warns it sees risks of “weaker” economic growth in Israel following the passage of the first bill of the government’s widely contested judicial overhaul.

“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 writes in the report. “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 US as well as tighter monetary policy.”

The rating agency sees Israeli economic growth slowing to 1.5% in 2023 from 6.5% in 2022.

Back in May, S&P affirmed Israel’s favorable rating at AA- with a “stable” outlook but cited “persistent domestic and regional political and security risks” as potential threats to the economy. The agency said it expected “some form of consensus” over the suspended judicial overhaul bid, which will allow “political tensions to moderate.”

Going forward, the rating agency projects that “domestic political polarization and volatility in Israel will remain high in the coming months,” as the adoption of other parts of the judicial reform remain “unclear.”