Following Moody's warning, S&P says that judicial reform controversy undermines Israeli economy

Standard and Poor's, the leading American financial agency, warned on Thursday that the Israeli “controversy over judicial reforms will continue to harm the Israel economy.”

S&P’s warning comes mere days after another leading global credit agency, Moody’s, warned that the newly-passed Reasonableness Standard Law creates high levels of market uncertainty, making Israel increasingly unattractive to investors

Moody’s downgraded the Israeli economic outlook in April from positive to stable due to the “deterioration of Israel’s governance.”

While S&P has so far refrained from downgrading the Israeli economic outlook, its new report cautioned that the sharp judicial reform disagreements between the coalition and opposition are harming the Israeli economy.

“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,” the S&P report stated.

“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,” according to S&P.

Tel Aviv Stock Exchange chief Ittai Ben-Zeev, recently warned of a looming Israeli financial crisis if the Netanyahu government continues to ignore warnings from Moody’s and other leading global financial players.

“Talk to Moody’s and other international credit rating companies and do what is necessary to prevent a downgrade that would be destructive to everything that has been built here with great effort and talent for many years,” Ben-Zeev urged.

Despite Israel’s geographic location in the Middle East region, the Start-Up Nation has emerged in recent years as an attractive investment market, mainly due to domestic fiscal stability and a local thriving tech sector. However, critics warn that the judicial reform controversy threatens Israel’s economic future, stressing the need for a national consensus.

Following Netanyahu’s return to office in November, more than 400 Israeli entrepreneurs in the high-tech sector wrote the prime minister a letter expressing their concerns about the incoming government’s potential to undermine Israel’s technology industry.