Concern regarding the judicial reform rattle the markets

ISRAEL - In Brief 29 Jan 2023 by Jonathan Katz

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Financial markets in Israel have sold off recently Concern regarding capital outflows have resulted in a weaker shekel, lower equity prices and higher bond yields. This follows growing international (as well as domestic) concern regarding the proposed judicial reform which would strengthen political control over judicial appointments (both Supreme court judges and judicial advisors to the Ministers) and weaken the ability of the Supreme Court to overturn legislation, or rule against government action. The proposed reform would enable the Parliament to overturn a Supreme court decision with a majority of 61 (out of 120) votes. It will be crucial for markets to see if Netanyahu is willing to compromise on this reform. Signs of slowing growth Last week, several indicators were released pointing to decelerating growth: Credit card purchases (real) slowed to 1.2% growth (saar) in Q4 from 4.6% in Q3. December witnessed a 1% m/m decline following zero growth in November. The BoI Composite Index slowed to 0.05% in December, following 0.09% in November and 0.33% in October. Revenues from the economy slowed to 0.9% saar in Sept-Nov from 1.1% the previous three months. Deceleration was noted in manufacturing as well, especially in hi-tech manufacturing. Hi-tech service exports did increase by 2.6% m/m in November, but this follows a 3.3% decline in October. Basically, exports have remained flat in the second half of the year. Inflation forecast: Petrol prices will go up by 4.8% in February pushing up our CPI forecast in February to 0.3% and 3.1% in 2023. This assumes a modest shekel depreciation to 3.48/USD in February and 3.52 end-year. Electricity prices went up 8.2% in January...