Israel’s Economy Teeters on the Brink as Protests Threaten Recession

In a worrisome turn of events, Israel’s economy is bracing for a severe downturn as protests escalate, warns Zvi Eckstein, former Deputy Governor of the country’s central bank. The controversial judicial overhaul triggered tens of thousands to flood the streets. And now it threatens to plunge the nation into an economic crisis, Eckstein cautions.

Protests Erupt Over Judicial Overhaul Bill

Tensions reached a boiling point earlier this week as the Israeli Parliament advanced a bill. The latter is seeking to curtail the autonomy of the Supreme Court, triggering massive demonstrations across the nation. Months of fervent unrest have laid the groundwork for a colossal blow to the economy. It also affected investments and overall stability, according to Eckstein, who currently serves as the dean at the Tiomkin School of Economics.

Tech Sector Bears the Brunt

The turmoil has cast a dark shadow over Israel’s high technology sector, a crucial pillar of its economy. Eckstein emphasizes the staggering repercussions, citing a significant reduction in investments in the sector. According to him, the high tech sector generated most of the growth of the Israeli economy, about 40%. That underscores the alarming 80% decline in investment in the country’s startup and growth companies.

Investment Plummets in Tech Firms

A July report from the Start-Up Nation Policy Institute (SNPI) further confirms the distressing trend, revealing a 68% drop in investments in tech firms during the first half of 2023, reaching a meager $3.7 billion—the lowest rate seen since 2018. Israel’s fintech sector and enterprise IT experienced the most significant declines, plummeting over 80% year-on-year. SNPI attributes the slowdown to a broader global trend.

Israel Slides in Global Tech Ecosystem Ranking

Highlighting the gravity of the situation, Israeli private equity investment group Viola reports that the country has slipped from being the world’s fifth best-funded tech ecosystem to the tenth. Additionally, the Tel Aviv Stock Exchange has struggled, dropping nearly 10% year-to-date, signaling a lack of growth in the market.

Dire Forecast for the Economy

Eckstein’s outlook for Israel’s economy is bleak, with a foreboding prediction of a substantial slowdown progressing into a full-blown recession within a year. From a robust 6.5% growth in 2022, the economy might decelerate to a paltry 2% or less by the second half of 2023. The looming threat of the judicial overhaul bill casts a dark shadow over the nation’s prospects for recovery.

Government Reform Plans Cause Shekel to Weaken

The Israeli shekel, which initially stood at 3.637 against the dollar, has weakened slightly since the start of the year when the government announced reform plans. In early June, the shekel hit a more than three-year low of 3.753 per dollar, exacerbating concerns about investor confidence.

Netanyahu Downplays Worries

Despite mounting concerns, Israeli Prime Minister Benjamin Netanyahu dismissed fears of compromised investor confidence as a mere “momentary problem.” He reiterated his belief in the robust fundamentals of the Israeli economy, downplaying the risks posed by the ongoing protests and the proposed bill.

Economic Turmoil Continues

As Israel faces the dual challenges of widespread protests and the controversial judicial overhaul bill, the economy remains mired in uncertainty. The potential consequences loom large, with investors and businesses closely monitoring developments that could ultimately determine the nation’s economic fate.

Overall, Israel’s economy stands at a critical crossroads as protests threaten to push it into a recession. The repercussions are already visible in the tech sector, with investments plummeting and a drop in the country’s global ranking. As the Israeli shekel weakens, concerns about investor confidence grow. The path to economic recovery remains uncertain, with the proposed judicial overhaul bill adding to the turmoil. As the nation grapples with these challenges, the future of Israel’s economy hangs in the balance.