Citi trims Israel’s growth estimates in shadow of judicial reform


Citi on Thursday trimmed its 2023 and 2024 growth estimates for Israel’s economy, citing lower investment stemming from the government’s planned judicial reform while saying GDP and credit ratings would also suffer in the medium term.

Economist Michel Nies at the bank reduced his growth forecast this year to 3.1% from 3.3% and in 2024 to 2.8% from 3.3%. He also sees 3.2% growth in 2025.

“The immediate (short-term) impact on GDP is likely muted, though the capacity of production not created might well be felt further down the line. We don’t think personal consumption will be too significantly affected either as income growth remains robust,” Nies wrote in a report.

The Bank of Israel estimates economic growth of 3% this year and next. S&P ratings agency believes growth will slow to 1.5% in 2023 from 6.5% in 2022.

Financial hardship predicted by proposed judiciary changes

The judicial changes to limit the Supreme Court’s powers pursued by Prime Minister Benjamin Netanyahu and his government have sparked an unprecedented crisis in Israel.

View of Bank of Israel main offices in Jerusalem, on January 2, 2023. (credit: YONATAN SINDEL/FLASH90)

The moves have deepened divides in society, bruised the economy through a weaker shekel and a steep drop in high-tech investment, and drawn concern from Western allies.

Netanyahu’s coalition says they are needed to curb an over-interventionist Supreme Court. Critics see the Supreme Court as a crucial last check on an executive working in lock-step with the legislature in a country that has no formal constitution.

Nies cut his estimate of Israel’s potential growth for beyond 2025 to 3.4% from 4%, saying the impact of government policies – including dealing with demographic changes – will weigh more on medium-term prospects than during the next few years.

“It is not only the judicial reform legislation that might have a significant impact on potential growth in Israel, but a range of other governmental decisions as well such as budget allocations, education policy etc. These decisions will affect many aspects of the country and its economy and, by extension, most asset classes,” he said.

He said policy changes could see growth estimates being revised in either direction, but as of now, “it is not hard to imagine further downside to potential GDP growth.”