The international credit ranking company, Fitch, reaffirmed the credit rating of the State of Israel at the A+ level and left the rating forecast as 'stable', despite claims from those who oppose the government of Prime Minister Benjamin Netanyahu's judicial reform bill, that the Israeli economy will be negatively impacted by such legislation.
In the company's announcement published Wednesday afternoon, there was an extensive reference to the economic situation in the country, and also to the expected legislative amendments in the judicial system. Among other things, it states that Israel's A+ credit rating balances a diversified and robust economy with high added value and strong external financial indicators, and a high government debt-to-GDP ratio, along with increased security risks and political instability that hinders the implementation of policy.
Fitch Ratings affirmed Israel’s long-term foreign-currency default rating at A+ with a stable outlook but warned that the government’s planned judicial overhaul could weaken the credit profile https://t.co/FewWdnXjRF
— Bloomberg (@business) March 2, 2023
According to Fitch, the Israeli economy is in a good position to prepare for a slowdown. Fitch expects that Israel's GDP growth will remain robust at a rate of 2.9% in 2023, after 6.4% in 2022, despite the global upheaval and the tightening of monetary policy that will affect private consumption and investments. Growth will be based on the continued growth of exports in the high-tech sector and in the defense industry, strong population growth, and after the passage of the budget, an increase in government spending. The company expects growth to return to the long-term potential, above 3%, in 2024 and 2025.
With regard to the increase in inflation, the rating company had some optimism for the Israeli consumer; the company expects that inflation will reach its peak in the first quarter of the year and will gradually stabilize to about 3% by the end of the year. The slowdown will be based on the soft landing of the Israeli economy, with the cooling of the high-tech sector which led to a strong increase in private sector wages.
Fitch reaffirms Israel’s credit rating but remains concerned about judicial reform and increased public spending.https://t.co/w6q7Qxqg2S pic.twitter.com/q9UX9M1JLr
— Isranomics (@isranomics) March 2, 2023
Also, the company expects that the increase in housing prices will moderate in light of the inventions of the variable interest rate component in mortgages and the high rate of apartment construction. Fitch further states that banks in Israel have sufficient capital and are in a good position to absorb an increase in the rate of non-performing loans.
Fitch then proceeds to speak of political initiatives by the current opposition that seeks to reduce the independence of the central bank to limit the increase in interest rates on mortgages. So far, the Prime Minister and the Minister of Finance have opposed these efforts. According to the company, this is not the base scenario, but the weakening of the central bank's independence will lower the credibility of the policymakers in Israel, which is currently a strong point in the credit rating.
