Israeli discontent and unrest threatens economy further: Stephen Done

The worsening situation within Israel is starting to raise questions for Israel’s top allies, including the United States.

The mass protests oppose the government’s plans for legal reforms in the judicial system which political opponents say severely undermine the country’s democracy by weakening the system which historically has kept a check on the government’s use of power.

The Israeli administration has been pushing for changes that would limit the Supreme Court’s power to review or scrutinise new laws set out by the country’s government, with a simple majority in the 120-seat Knesset overriding court rulings.

The reforms would also allow politicians to appoint judges to the bench themselves and no longer require ministers to obey the guidance of their legal advisors.

The Bank of Israel has warned that the fallout from the controversial plan could reduce the country’s gross domestic product (GDP) by 2.8 per cent annually over the next three years on average.

The Organization for Economic Co-operation and Development (OECD) also released a report on the Israeli economy last week predicting that Israel’s GDP growth rate will slow from 6.3 per cent in 2022 to 2.8 per cent in 2023 and rebound to 3.4 per cent in 2024.

A large influence on the fall in GDP is the adverse impact of uncertainty around investment in the economy, from both domestic and foreign investors.

This estimation came as the Bank of Israel raised its benchmark interest rate for the ninth consecutive time to 4.5 per cent, the highest level since 2007.

This aggressive move follows similar monetary committees’ assessments with the move intended to combat inflation, the annual inflation rate of which stood at 5.2 per cent in February, slightly lower than January’s 14-year high of 5.4 per cent.

The current elevated inflation levels within the country also negatively impact GDP forecasts as higher inflation affects both the country’s exports and the population’s disposable income, therefore creating reduced demand for private consumption (a significant component of a country’s economic output).

Here in Yorkshire, the UK-headquartered energy giant British Petroleum (BP) has joined forces with Harbour Energy to develop a carbon capture and storage (CCS) project located close to the heavily industrialised Humber region in the North East of England. The investment will see BP acquire a 40 per cent non-operated share in the Viking Project which will continue to be fully run by Harbour and will bring together two of the most experienced energy operators in the North Sea.

The transformational project will help to decarbonise the UK and aims to meet one-third of the UK government’s target to capture and store up to 30 million tonnes of CO2 annually by 2030.

Stephen Done is a member of the Investment Research Team at Redmayne Bentley​​​​​​​