Israeli GDP estimated to dip in light of judicial overhaul

By Al Mayadeen English
Source: Israeli media
3 Aug 2023 23:54

An economist at Citibank points out that the impact of the judicial reform on the economy may be buffered in the short term, but its implications would be felt down the line.

Israelis protest against the plans by Prime Minister Benjamin Netanyahu's new government to overhaul the judicial system, in occupied Palestine, February 9, 2023 (AP)

Citi, the global bank, has lowered its growth forecasts for "Israel's" economy in 2023 and 2024 due to reduced investment resulting from the government's planned judicial reform, signaling potential consequences for GDP and credit ratings in the medium term.

Economist Michel Nies at Citi adjusted his growth projections for this year to 3.1% from 3.3% and for 2024 to 2.8% from 3.3%.

"The immediate (short-term) impact on GDP is likely muted, though the capacity of production not created might well be felt further down the line. We don’t think personal consumption will be too significantly affected either as income growth remains robust," Nies wrote in a report.

Beyond 2025, Nies has lowered his estimate of "Israel's" potential growth to 3.4% from 4%, attributing the dampening effect to various government policies, including addressing demographic changes, which could weigh more on medium-term prospects than in the short term.

"It is not only the judicial reform legislation that might have a significant impact on potential growth in Israel, but a range of other governmental decisions as well such as budget allocations, education policy etc. These decisions will affect many aspects of the country and its economy and, by extension, most asset classes," Nies explained.

Moreover, the uncertainty surrounding the controversial judicial overhaul is reportedly impacting Israel's tech ecosystem, as private funding by Israeli startups hit a five-year low in the first half of 2023.

Start-Up Nation Central (SNC), which tracks "Israel’s" tech industry, reported a 29% drop in private financing rounds compared to the second half of 2022 and a significant 67% decline from the same period last year, with only $3.9 billion raised.

“It is essential to acknowledge the uncertainty in Israel resulting from the recent judicial reform,” it was cautioned in the report. “The ripple effect is already being felt with indicators such as decreased fundraising and fewer emerging Israeli startups.”

As "Israel's" tech ecosystem contributes to about 16% of GDP, over 50% of exports, and more than 25% of the total income tax collected by the government, the downturn in startup funding raises concerns about the broader economic implications of the ongoing judicial reform uncertainty.