Israel’s central bank raised the country’s macroeconomic risk rating, citing uncertainty surrounding the government’s divisive overhaul of the judiciary.
(Bloomberg) — Israel’s central bank raised the country’s macroeconomic risk rating, citing uncertainty surrounding the government’s divisive overhaul of the judiciary.
The Bank of Israel said the financial system remained stable but lifted its gauge of macroeconomic risk by one level on Wednesday, to medium-high from medium-low. In its bi-annual stability report, it said judicial changes could undermine the financial system in the medium term if combined with factors such as monetary tightening and a slowdown in global growth.
The plans have “caused a significant increase in uncertainty in the business sector and among key players in the financial markets in Israel and around the world,” the bank said.
The proposals from Prime Minister Benjamin Netanyahu’s right-wing coalition have triggered mass protests and hit Israeli financial stocks and bonds. Late last month, parliament passed a law removing judges’ ability to strike down government decisions on the grounds of “reasonableness.”
Ministers have said that’s the first step in a wider plan.
The monetary authority still forecasts growth of 3% for this year and 2024. It said, though, that continued weakening of the shekel, which is down 4% against the dollar since the end of 2022, and a further decline in exports could cause the economy to slow.
The report warned about “the risks involved in permanent structural changes that are perceived as weakening the independence of the institutions.”
It highlighted positive factors, including the growth of Israel’s natural-gas industry, which may enable it to export more energy to Europe in the future.
The Abraham Accords, which formalized relations between Israel and several regional countries including the United Arab Emirates, will probably promote economic cooperation and reduce regional and security tensions, according to the Bank of Israel.
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