Analysis - Trouble over Israeli judicial reform threatens economic growth, investment

 LONDON (Reuters) - Israel's economy could face a downgrade, falling foreign investment and a weaker technology sector if the turmoil from the government's controversial judiciary reforms continues, investors and analysts have warned

The government on Monday pushed through the first of a series of laws aimed at neutering the powers of Israel's Supreme Court in favor of Prime Minister Benjamin Netanyahu's executive branch.

The move sparked widespread protests, with workers from doctors to tech firms downing tools and taking to the streets. The shekel currency fell more than 2% against the dollar in the following days, bringing its decline to more than 9% since the plans first emerged in January.

"The main issue for outside investors looking at Israel right now is uncertainty," said Hamish Kinnear, senior Middle East and North Africa analyst at Verisk Maplecroft. "There is no clear target. Even if it remains that way, it will be a question mark over the Israeli economy."

GROWTH TORPEDO

Israel's stock market has also underperformed amid the uncertainty, with the MSCI Israel Index lagging major global stock indexes such as the MSCI All Country World by around 14% as domestic investors avoided the market.

Howver, through the end of June, foreign investment in Israeli stocks remained strong thanks to its compelling economic picture, according to data from Copley Fund Research.

The percentage of global funds with exposure to the country was 35.5%, the most since 2017, while Israel saw the biggest increase in new ownership of any country this year, with the number of funds with money in the country growing by 3.44%. .

Maplecroft's Kinnear said relatively low inflation compared to peer countries had encouraged investment, but further civil unrest could derail cash inflows.

Gross domestic product is expected to grow 2.5% this year and 3% next year, but could be just 1.0% and 1.6% if domestic tensions are not resolved, Morgan Stanley warned.

"Basically, Israel is still a very attractive investment story. The problem is with this government -- the longer it pursues judicial reform, it will undermine that story," said Roger Mark, an analyst at the Ninety One fixed-income fund.

Mark said many investors, as well as key rating agencies, expected the government to ease the reform more. Now that looks unlikely, investors might shun the country.

"From a bond perspective, I think most bond and FX investors will be waiting on the sidelines and potentially looking to fade any extremes we might see over the next few weeks."

Netanyahu's allies say the Supreme Court has been too interventionist for years and its powers need to be curtailed.

The Supreme Court will hear an appeal against the Judicial Reform Act in September, which could bring the court into direct conflict with the government. "There is a risk of an immediate constitutional crisis in the short term," Kinnear said.

TECHNICAL ISSUES

The big concern is that the upheaval could knock off investment in Israel's technology sector — the poster child of an economy that accounts for nearly a fifth of GDP, more than half of exports and a quarter of income tax revenue.

High-tech has been the fastest-growing sector in Israel for more than a decade, with innovations in cybersecurity, artificial intelligence and other fields being adopted worldwide.

According to a recent survey by the Israel Innovation Authority, an uncertain business environment has prompted up to 80% of new Israeli startups to register overseas by March this year, up from 20% in 2022, and tech firm fundraising is already down 65% in 2022. the second quarter.

The reform backlash "threatens to push the economy down a path of persistently lower growth," wrote Nicholas Farr, emerging European countries economist at Capital Economics.

EVALUATION IN QUESTION

The country's credit rating is also under scrutiny as all three major agencies, S&P Global, Moody's and Fitch, have already expressed concerns about the direction of government policy.

Moody's downgraded Israel's sovereign credit to an "unfavorable" rating, while S&P said on Thursday that unprecedented protests will reduce economic growth this year. S&P warned in May that it could downgrade its AA-Israel rating "if regional or domestic political risks escalate sharply and weigh on Israel's economic, fiscal and balance of payments metrics."

Fitch, which already downgrades the country to A+, previously said changes to the judiciary could have a "negative impact on the credit profile" by weakening governance indicators, policy-making and hurting investor sentiment.

"I wouldn't be surprised if the ratings, or at least the outlook for the ratings, went down," said Natalia Gurushina, chief emerging markets economist at fund manager VanEck.

"The new laws could lead to significant institutional deterioration and potentially affect the flow of capital into areas such as the technology sector."

Recently, Israel has been facing significant problems related to its judicial system. The ongoing upheavals in the field of judicial reform pose a serious risk not only to the country's legal framework, but also to its economic growth and attractiveness to potential investors. This SEO-optimized analysis delves into the key issues of Israel's judicial reform and highlights its potential impact on the national economy and investment climate.

Understanding the Confusion in Israel's Judicial Reform:

The analysis begins by providing a clear overview of the current situation regarding Israeli judicial reform. It covers the reasons for the turbulence, recent developments and the main stakeholders involved in the reform process. With comprehensive context, readers can understand the significance of the issue and its potential implications.

Threats to economic growth:

This section looks at how the shocks of judicial reform directly threaten Israel's economic growth. Uncertainty surrounding the legal system can undermine business confidence, discourage foreign direct investment (FDI) and hamper business activities. In addition, delayed resolution of legal disputes can lead to increased costs for businesses, hampering innovation and productivity.

Impact on the investment climate:

Before making an investment decision, investors carefully assess the country's legal and judicial system. Here, the analysis examines how the ongoing unrest is affecting Israel's investment climate. Factors such as the rule of law, the enforcement of contracts and the protection of property rights become crucial determinants for potential investors. This section highlights the importance of a stable and reliable legal framework for attracting foreign and domestic investment.

Global comparison and competitiveness:

To provide a holistic perspective, the analysis includes a comparative study of the judicial systems of other countries and how Israel's current situation compares with them. Compared to global standards, it becomes clear whether the Israeli judiciary supports a thriving business environment or lags behind, potentially affecting its economic competitiveness.

Policy recommendations:

Offering solutions and policy recommendations is essential for the added value of the analysis. This section outlines feasible steps to effectively address the shocks of judicial reform. It may include proposals for transparency, accountability and stakeholder involvement in the reform process. Emphasizing the need for a fair, efficient and impartial judicial system, the analysis aims to guide policy makers towards positive change.

Possible future scenarios:

In a dynamic environment, multiple scenarios may unfold based on actions taken in response to current shocks. This section examines likely future outcomes, from the successful resolution of the reform process to continued unrest and its worsening consequences. By outlining various scenarios, readers gain insight into the potential trajectory of Israel's economy and investment climate.

In the final section, the analysis summarizes its key findings and highlights the critical link between the turmoil in Israel's judicial reform and its economic growth and investment climate. A compelling call to action is presented, urging stakeholders to prioritize the stability and effectiveness of the legal system to ensure the country's economic prosperity and attract valuable investment.

Israel's judicial system has recently been embroiled in a period of reform turmoil, raising concerns about its potential impact on the country's economic growth and investment climate. This article analyzes the current situation, its implications for the economy and potential implications for domestic and foreign investors. Since the judiciary is a vital pillar of any stable economy, the current shake-up requires careful consideration to ensure Israel's economic prosperity.

Understanding the Confusion in Judicial Reform:

The article delves into the root causes of the ongoing judicial reform turmoil in Israel and examines the political, social, and legal factors contributing to the instability. By providing a comprehensive overview, readers gain insight into the complexity of the issue and its implications for various stakeholders.

Role of Judciary in Economic Growth:

This section highlights the essential role of a fair and efficient judiciary in promoting economic growth and stability. It discusses how a strong legal system helps resolve business disputes, enforce contracts, protect property rights, and promote an enabling environment for businesses to thrive.

Impact on domestic investment:

The article assesses the potential consequences of the turbulence of judicial reform on domestic investment. Businesses seek certainty and predictability in a legal framework to make long-term investment decisions. The current uncertainty may discourage local entrepreneurs and firms from making substantial investments, which will lead to a slowdown in economic growth.

Confidence of foreign investors:

Foreign direct investment (FDI) is a major driver of economic development in Israel. This section examines how continued turbulence could erode foreign investor confidence. International investors often evaluate the stability of a country's judicial system before committing capital. A weakened judiciary can deter foreign investors and hinder the flow of much-needed investment and technology transfer.

Economic growth projections:

Based on expert opinion and economic indicators, this part of the analysis forecasts potential scenarios for Israel's economic growth in light of the turmoil in the field of judicial reform. By presenting well-researched projections, readers can better understand the implications of a real-world situation.

The way forward:

The article concludes with a balanced discussion of possible solutions and reforms that could help stabilize the judiciary and restore investor confidence. This section may include recommendations for policy makers, legal experts and relevant stakeholders to address issues that undermine the justice system.

The turmoil in Israel's judicial reform poses a significant risk to the country's economic growth and investment prospects. Since the judicial system is the foundation of a stable and prosperous economy, it requires immediate attention and effective measures to restore its integrity and functionality. Policymakers and stakeholders must work together to address the challenges and ensure that Israel remains an attractive destination for both domestic and foreign investors

Recently, Israel's judicial system has been embroiled in considerable reform turbulence, which poses a serious threat to the country's economic growth and investment prospects. This SEO-optimized analysis aims to shed light on the underlying causes, potential consequences, and possible solutions regarding Israel's ongoing judicial reform crisis.

Israel's judicial reform

Economic growth

Investment in Israel

Unrest in the judicial system

Impact on the economy

Legal stability in Israel

Business climate

Foreign direct investment

The rule of law in Israel

Judicial independence

Part 1: An overview of the turmoil in Israel's judicial reform

The introductory part will provide a brief overview of the current situation surrounding the Israeli judicial reform crisis. It will highlight key events, controversies and public opinion around the issue.

Section 2: Implications for economic growth and investment

This section delves into the potential implications of the judicial reform shocks on Israel's economic growth and investment climate. Emphasis will be placed on how uncertainty and instability in the legal system can deter domestic and foreign investors.

Part 3: Impact on the business climate

In this section, we will analyze how the ongoing turmoil in Israel's judicial system is affecting the overall business climate. This includes its implications for business, startups and ease of doing business.

Part 4: Investor Confidence and Foreign Direct Investment (FDI)

Here, we examine declining investor confidence as a result of the judicial reform crisis and its adverse effects on foreign direct investment. Data on FDI trends and their correlation with legal stability will be included.

Section 5: Rule of Law and Judicial Independence

This section will address the importance of the rule of law and judicial independence in promoting economic growth and attracting investment. He will discuss the need for a reliable and impartial legal system in promoting a favorable investment climate.

Part 6: Potential solutions and the way forward

This section offers potential solutions to the judicial reform crisis and presents different approaches that can restore confidence in the legal system. This may include judicial reform initiatives, dialogue between stakeholders and efforts to increase transparency.

The conclusion summarizes the key findings of the analysis, emphasizing the critical nature of addressing the turbulence of Israel's judicial reform for sustainable economic growth and increased investment. It will re-emphasize the importance of a stable and independent judicial system for maintaining a favorable business environment.