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Fitch on Israeli economy: ‘It’s not doomsday’

"In our view, we are likely to see new investments in Israel when the global trends turn," said Fitch's lead analyst, Cedric Berry.

A view of the Tel Aviv Stock Exchange, Dec. 25, 2018. Photo by Adam Shuldman/Flash90.
A view of the Tel Aviv Stock Exchange, Dec. 25, 2018. Photo by Adam Shuldman/Flash90.

In an interview with Bloomberg News published on Monday, Fitch Ratings analyst Cedric Berry dispelled the notion that Israeli Prime Minister Benjamin Netanyahu’s judicial reform agenda has inflicted “significant” damage on the Israeli economy.

“In our view, we are likely to see new investments in Israel when the global trends turn. … The key message here is that it’s not doomsday,” Berry said, reiterating the credit evaluation firm’s earlier assessment that attributed a drop in investments in the Jewish state to a worldwide trend.

On Aug. 14, Fitch Ratings reaffirmed Israel’s A+ score with a “stable” outlook, causing the Tel Aviv stock market to rise, and the shekel to strengthen against the dollar and the euro.

“Israel’s ‘A+’ rating balances a diversified, resilient and high value-added economy and strong external finances against a relatively high government debt/GDP ratio, ongoing security risks, and a record of unstable governments that has hindered policymaking,” Fitch said at the time.

Israeli Prime Minister Netanyahu and Israeli Finance Minister Bezalel Smotrich responded with a joint statement, saying, “The approval of Israel’s credit rating at the level of A+ and the leaving of the forecast at ‘stable’ prove what we have been saying all the time: Israel’s economy is strong, stable and solid.”

Fitch’s Cedric Berry told Bloomberg on Monday that “it would take a very strong reform drive to inflict a significant amount of damage, and we don’t think that’s where the government is headed.”

“Even if there is a bit of movement outwards of talent and capital, there is still quite a lot of activity that will remain in Israel and be sufficient to drive the economy,” said the lead analyst, explaining that Fitch does not anticipate an exodus of talent or capital.

Commenting on the recent depreciation of the shekel compared with the U.S. dollar, Berry explained that currencies and stock markets “tend to react more strongly than economic fundamentals,” and that it was the fundamentals that determined Fitch’s assessment.

In its Aug. 14 report, Fitch indicated that it was unclear how Jerusalem’s judicial reform initiative would impact Israel’s credit metrics in the future, although it could bring negative changes “if the weakening of institutional checks leads to worse policy outcomes, sustained negative investor sentiment or weakens governance indicators.”

Last month, global credit ratings agency Moody’s maintained Israel’s “stable” A1 rating, while also warning of “negative consequences” for the country’s economy and security following the passing into law of key reform legislation.

Netanyahu has said that his government will seek an agreement with the opposition on the rest of the judicial reform package during the Knesset’s ongoing summer recess.

In addition, the judicial reform program has been temporarily placed on the back burner to allow for the passing of a law regulating the draft into the Israel Defense Forces of haredi, or ultra-Orthodox, Jewish men during this fall’s parliamentary session.

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