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S&P affirms Israel’s rating but warns on growth

Israel economy Reuters/Ronen Zvulun
Controversial plans being pursued by Prime Minister Benjamin Netanyahu and his right-wing government are now impacting economic growth forecasts

Credit ratings agency S&P on Friday affirmed Israel’s “Aa-/A-1+” rating and kept its outlook stable, but warned that fallout from a highly contested judicial overhaul could hamper growth.

Israel’s government is trying to push through changes that would give politicians greater sway over selecting judges and to limit the power of the Supreme Court to strike down legislation. The plan has sparked months of mass protests.

Prime Minister Benjamin Netanyahu, under pressure at home and abroad, has agreed to delay the overhaul to try to negotiate a middle ground, and focus has shifted to passing a state budget before an end-of-the-month deadline.

“Our current baseline scenario assumes that elevated domestic tensions will ultimately be de-escalated and some form of consensus will be established,” the agency said.

“Even though we expect tensions to ease, the current uncertainty is likely to weigh on growth in the near term in our view,” it said. “While it is difficult to quantify, spillover effects could include the postponing of both domestic and foreign investments, as domestic corporates and overseas investors delay their spending decisions.”

Israel’s central bank, its securities regulator, and senior finance ministry officials have all warned that the judicial overhaul might impact investor sentiment and hurt the economy.

Last month credit ratings agency Moody’s downgraded its outlook for Israel, saying the country’s institutions were less predictable given the government’s handling of domestic events.

S&P forecast Israel’s economic growth to be 1.5 percent in 2023.

It cited Israel’s “resilient economy, strong balance of payments, and moderate level of public debt” in keeping its outlook stable.