OECD warns judicial reform 'increases risk to Israeli economy'

Organization leaves Israel's growth forecast unchanged at 2.9% this year and 3.3% in 2024. Finance Minister Bezalel Smotrich attends OECD's annual summit of finance ministers in Paris
Adrian Filut|
"The increase in security events and the continuation of political tensions surrounding the judicial reform may increase the risk, lead to a hardening of the financial environment and weigh on business sentiment and investments in the Israeli economy." warned economists of the Organization of Developed Countries (OECD) Wednesday about the local economy. These warnings come as part of a global economic forecast and while Finance Minister Bezalel Smotrich is currently at the OECD's annual finance ministers' summit in Paris.
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Although the organization's economists updated the growth forecast for the world from 2.2% to 2.7% and for the OECD from 0.8% to 1.4%, they left Israel's forecast for the next two years unchanged at 2.9% and 3.3%, respectively. The OECD believes that the risks in the global economy could lead to a downward forecast, with more chances of the situation deteriorating compared to improving the future situation, saying: "The escalation of the conflict in Ukraine could have a negative impact on the economy through lower demand from the trading partners."
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הפגנה נגד המהפכה המשפטית בתל אביב
הפגנה נגד המהפכה המשפטית בתל אביב
Protesting judicial reform in Tel Aviv
(Photo: Moti Kimchi)
The OECD believes that the growth of Israel's economy will be higher than that compared to the other developed countries and is still higher than the forecasts of the other international bodies (rating companies and the IMF). According to the organization, the weakness in growth will be reflected in a drop in exports and a sharp slowdown in private consumption and investments. According to the OECD, only government consumption ( i.e, the budget) is expected to grow more than before. As a result, the aggregate demand of the Israeli economy is expected to slow down sharply and grow by only 2.6% compared to 7.3% last year.
The OECD economists describe a picture of the Israeli economy according to which private consumption has decreased, business confidence has weakened and the rate of job vacancies continues to decrease – especially in the high-tech sector. According to the review, tax revenues are slowing down while growth is moderating, with several factors affecting those revenues – mainly as a result of the moderation in real estate prices.
"The raising of capital by high-tech companies has decreased considerably compared to the high levels in 2021 and early 2022, the weak shekel and the stock market that has underperformed compared to the rest of the world," the OECD adds, but emphasizes that the labor market is still strong and investments are still positive.
The organization's economists are very disturbed by the increase in inflation and emphasize that it is above the target where core inflation (general inflation without food and energy) is very high.
The OECD also refers to the government's policy that it says encourages non-employment of the ultra-Orthodox, writing: "Dealing with demographic challenges, related to the increase in the share of population groups with low participation in the labor market, is essential to maintaining future growth and fiscal sustainability (the ability to manage low deficits and curb the debt). This will require determining appropriate work incentives, better support for working parents - including by expanding child care services in disadvantaged areas, improving skills at all stages of the learning cycle, as well as facilitating mobility and providing access to jobs and companies with high productivity."
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