Israel’s economy to see recession next year, says former deputy central bank governor

New protests in Israel over controversial judicial reforms will lead to a sharp slowdown in the country’s economy, former central bank deputy governor Zvi Eckstein said.

Tens of thousands took to the streets earlier this week after the Knesset pushed a bill aimed at limiting the autonomy of the country’s highest court.

Eckstein, now dean of the Tyomkin School of Economics, told CNBC’s “Capital Connection” that the violent unrest that began months ago could have a “huge impact” on the economy and its investment inflows.

It has also led to a “significant reduction” in investment in Israel’s high-tech sector, which is key to the country’s economy, he said.

“Most of the growth in the Israeli economy, about 40 percent, is driven by the high-tech sector,” Eckstein said, emphasizing that investments in start-ups and growth companies in the country are currently down 80 percent.

according to a Startup National Policy Institute (SNPI) July ReportTechnology company investment fell 68% to $3.7 billion in the first half of 2023, the lowest level since 2018.

The report also shows that Israel’s financial technology industry and corporate IT industry have experienced the largest declines, plummeting by more than 80% year-on-year. The SNPI sees the investment slowdown as part of a global trend.

independent Report by Israeli private equity group ViolaIt also said Israel dropped its ranking as the fifth-largest well-funded tech ecosystem in the world to become tenth.

Eckstein also pointed to the lack of growth in Israeli stocks over the past six months. The country’s Tel Aviv stock exchange has fallen nearly 10% so far this year.

“Within a year, we’re going to see a big slowdown in the economy … I’m expecting a big downturn in the next year, right into a recession,” he predicted.

Iseral’s 6.5% economic growth in 2022. But Eckstein said growth could slow to around 2% or even lower by the second half of 2023.

The former central bank chief said there was no light at the end of the tunnel in sight, especially as the government continued to try to pass the bill, which would destabilize the economy.

The law would transform Israel’s judicial system by giving the current government complete control over judicial appointments. Some critics believe it would also weaken the country’s highest court, ending its checks and balances on executive and legislative power.

The current exchange rate of Israeli Shekels to Israeli Shekels is 3.637 DollarIt has weakened slightly since the reform plan was first announced at the beginning of the year. In early June, the shekel fell to a more than three-year low of 3.753 per dollar, Refinitiv data showed.

In early April, Israeli Prime Minister Benjamin Netanyahu dismissed concerns about damage to investor confidence, saying it was a “temporary problem”. He also affirmed that the fundamentals of the Israeli economy are “very strong.”