‘It's not doomsday,’ Fitch lead analyst explains optimism on Israel's economic outlook

Despite fears to the contrary, the credit ratings agency Fitch last week confirmed Israel’s credit rating at A+ and the country’s outlook as “stable.”

This credit ratings announcement came amid concern that Fitch would follow the example of Moody’s and S&P, which downgraded Israel in their rankings in the wake of the judicial reform controversy. After 33 weeks of nationwide protests against judicial reforms and divisions within Israeli society, many financial experts believe the controversy has damaged the Israeli economy.

Cedric Berry, Fitch’s lead analyst on Israel, explained Fitch’s surprising optimism compared to other international rating agencies in an interview with Bloomberg News, published on Monday.

Part of his optimism derives from his pessimism regarding the government’s long-term chances of survival.

"Even if Israel’s government lasts four years, it’s unlikely that a similar coalition would be formed afterward, so it would take a very strong reform drive to inflict a significant amount of damage, and we don’t think that’s where the government is headed," Berry explained.

Regarding fears that Israel’s prized high-tech sector would see a wave of emigration if the reform was passed, Berry said, "Even if there is a bit of movement outwards of talent and capital, there is still quite a lot of activity that will remain in Israel and be sufficient to drive the economy."

Fitch put its emphasis on the economic fundamentals of the Jewish state, Berry stressed, which is why its report didn’t put much weight on the fluctuations in the stock and currency markets, which “tend to react more strongly than economic fundamentals.”

"The key message here is that it’s not doomsday," Berry emphasized.

According to his perspective, for Israel’s credit rating to be damaged, there would have to be "a significant exodus of both talent and capital and that’s not something that we anticipate at this point," he told Bloomberg News.

However, it wasn’t all optimism from Berry. What could have a significant impact, he warned, is "a massive change in the way judges are appointed with a very political agenda."

A bill that would amend the composition of the Judicial Selection Committee was supposed to be the next and last portion of the judicial reform, Prime Minister Benjamin Netanyahu told Bloomberg two weeks ago.

The current plans regarding the bill are unclear at the moment, as the ultra-Orthodox political parties seek to pass an amended National Service Law before that happens.