Following the downgrading of Israel’s economic forecast from positive to stable by Moody’s Investors Service, pundits have suggested that the global credit-rating firm’s decision is unlikely to actually harm Israel’s economy, and those who suggest it has any impact are either exaggerating or merely looking for any opportunity to naysay the current administration.
Moody’s assigns scores and ratings to bonds issued by commercial and government entities to give investors information about their potential investments.
What is Moody’s and what happened?
Last April, Moody’s affirmed Israel’s economic forecast status as “positive,” indicating that investing in the country was a generally decent idea.
In light of the recently elected government’s activity, however, particularly that pertaining to the radical overhaul of the country’s judicial system, Moody’s decided to downgrade Israel’s forecast, citing “a deterioration of Israel’s governance, as illustrated by the recent events around the government’s proposal for overhauling the country’s judiciary.”
This is a direct fulfillment of the warning levied by hundreds of experts, economists, Nobel Prize laureates, tech executives and even one chess international grandmaster, who have all stated that the judicial reform will result in lowered credit and investment ratings from global organizations, leading to a domino effect of investor pullout, hi-tech collapse and the flight of Israel’s entrepreneurs to a country that can guarantee investors more stability.
A drop in the bucket fills the bucket more
Moody’s going through with its downgrade of Israel is a single, simple straw on the back of Israel’s economic camel. In that sense, it’s perhaps true that the single downgrade alone may not be enough to make an impact. But as it is followed by more credit ratings from investment industry leaders such as JPMorgan and S&P – both of which have warned of incoming downgrades – it’s likely that the economic camel will be in need of a visit to the chiropractor soon.
“The most important message that Moody’s sent was with regard to the very problematic intentions and their economic implications of the government vis-à-vis Israel’s judicial system,” said Prof. Dan Ben-David, head of the Shoresh Institution for Socioeconomic Research and an economist at Tel Aviv University. “This is how professionals abroad who need to make investment decisions for their firms and organizations – non-Israeli professionals who are not on anybody’s side in Israel – currently view what we are undergoing. In other words, our problems are not with the people who wrote Moody’s report but with others just like them abroad who need to make investment decisions on the basis of the same information that led to this report.”
“It’s not a coincidence that while the stock markets in all of the G7 countries except the UK – a country with its own governance issues – have gone up since the beginning of the year, when the Israeli government was formed, our stock market has tumbled. This occurred despite the fact that our economy had hitherto been doing better than nearly all other developed countries in 2022.”
According to Prof. Elise Brezis, an economist and director of the Azrieli Center for Economic Policy at Bar-Ilan University, it is remarkably unwise to focus on Moody’s move alone, without considering the looming possibility of similar moves from others.
“The situation is similar to someone who eats two pounds of cake every day but still does not see a change in their weight. The weight is increasing, just a little at a time,” she said, adding that once the ball drops, Israel is likely to see fewer investors, lower GDP and a higher government deficit.
“Don’t worry, worse things are coming,” Brezis said.