Prolonged uncertainty over Israel’s judicial overhaul presents a “notable downside risk” to the country’s economy, the International Monetary Fund (IMF) on Wednesday.
“Absent the emergence of a durable and politically sustainable solution, continued uncertainty could significantly increase the price of risk in the economy, tightening financial conditions and hindering investment and consumption, with potential repercussions for growth, also in the longer term,” the IMF said in its initial country report on the Israeli economy. “Permanently lowering the uncertainty around judicial reform requires a politically sustainable solution that is clearly communicated and well understood both domestically and abroad.”
“As in any country, maintaining strength of the rule of law would be important for economic success,” it was written in the report.
The warning comes after Moody’s Investors Service said in April that the key trigger for lowering Israel’s credit rating outlook to “stable” from “positive” was concern that the planned changes to the country’s legal system would threaten the independence of the judiciary, which is crucial in particular in Israel. The agency kept the country’s actual credit rating intact at A1, citing “strong economic growth and improving fiscal strength.”
Senior executives and entrepreneurs from Israel’s business and tech community have taken to the streets in recent months to publicly voice their concern over the judicial overhaul and senior economists have repeatedly warned that the planned government moves will essentially neuter Israel’s democratic system of checks and balances and undermine the rule of law.
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Following the protests, the advancement of the proposed judicial changes was paused in March to allow for negotiations between coalition and opposition representatives in an attempt to formulate broad consensus on the judicial reform.
File: The logo of the International Monetary Fund is visible on their building, Monday, April 5, 2021, in Washington. (AP Photo/Andrew Harnik)
The IMF’s initial country report was presented to Finance Minister Bezalel Smotrich and Bank of Israel Governor Amir Yaron. The IMF’s detailed annual country report will be published at a later stage.
While warning about the downside risk to Israel’s economy posed by the proposed judicial changes, the IMF commended Israel for its “remarkable” recovery from the coronavirus pandemic in 2022, which it said was based on strong fundamentals propelled by a “vibrant” high tech industry.
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“Public debt-to-GDP fell rapidly to pre-COVID levels, international reserves are ample, the external position is strong, and the banking sector has adequate capital and liquidity buffers,” the IMF noted.
Looking ahead, “the outlook is for growth to slow broadly in line with its potential, as inflation falls to the targeted range by the end of 2024,” the IMF said.
The IMF cut Israel’s growth outlook for 2023 to 2.5% from 2.9% after the economy expanded by 6.4% last year. That is in line with Bank of Israel’s projections of growth of 2.5% in 2023 and 3.5% in 2024.
In early April, the OECD cautioned that the country’s pace of economic growth is expected to moderate, warning that “risks are skewed to the downside, related to high global and domestic uncertainty.” The organization sees GDP slowing to 3% in 2023 and 3.4% in 2024.
Tech workers protest against the government’s judicial overhaul ‘time is running out for Israeli hi-tech,’ in Tel Aviv, on March 23, 2023. (Avshalom Sassoni/Flash90)
Among the downside risks to growth for Israel, the IMF also cited spillovers from a weaker global economic outlook, a renewed surge in global energy prices, new supply chain disruptions, and growing geopolitical tensions.
The IMF expects the global economy to expand 2.8% this year and 3% in 2024 slowing from GDP growth of 3.4% in 2022, amid the banking system turmoil, high inflation, and tighter monetary policy.
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Commenting on the IMF review, Yaron noted that the report “indicates the robust economic baseline conditions of the Israeli economy, alongside the challenges it faces, as well as the range of vital policy measures implemented by the Bank of Israel to eradicate inflation and maintain the stability and advancement of the Israeli economy.”
The IMF report praised Israel for its “prudent” fiscal management and recommended monetary policy to remain tight as inflation is still hovering around 5% and is above the government target range of between 1% to 3%.
“Fiscal policy should safeguard fiscal buffers while raising growth-enhancing spending,” the IMF said. “The fiscal stance seems adequate to preserve buffers, but additional fiscal space is needed for boosting potential growth and reducing inequality.”
The IMF recommended further education reforms and additional investment in infrastructure to ease traffic congestion and improve job accessibility which it said could boost GDP growth and reduce inequality.
Standard & Poor’s rating update
The IMF review on the Israeli economy comes ahead of Standard & Poor’s update on the country’s credit rating which is expected to be released late on Friday. Following its last review in November, S&P kept Israel’s favorable rating unchanged at AA- with a “stable” outlook, citing the country’s wealthy and resilient economy.”
In January S&P’s Global Ratings director Maxim Rybnikov told Reuters that risks to the country’s ratings are balanced, but that could change as the agency was closely watching the government moves on the advancement of the proposed judicial overhaul.
“If the announced judicial system changes set a trend for a weakening of Israel’s institutional arrangements and existing checks and balances this could in the future present downside risks to the ratings. But we are not there yet,” said Rybnikov.
Aiming to at least avert a downgrade in Israel’s credit rating outlook, Prime Minister Benjamin Netanyahu and President Isaac Herzog, who is hosting compromise talks on the overhaul, are said to have held discussions in recent days with senior S&P officials, trying to reassure the agency that legislation has been paused to reach broad agreements and will not be advanced in its original format, Calcalist reported.
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“There is no shift expected in Israel’s rating outlook as the legislation on the judicial overhaul has now been frozen for one and a half month and politicians, including the prime minister have indicated that they will not pursue a unilateral move,” Jonathan Katz, chief economist at Leader Capital Markets, told The Times of Israel.
Bank Hapoalim economists expect S&P’s update on the country’s sovereign rating to focus on macroeconomic risks and the fiscal situation and less on judicial overhaul concerns.
Hapoalim forecasts zero economic growth in the coming quarters with the possibility of a contraction in Israel’s GDP. The economists cited a decline in the exports of goods in the first quarter and in the activity in the high-tech sector, as well as a slowdown in private consumption, and a drop in building starts.
Israel’s vaunted tech sector has long been touted as the main engine of Israel’s economic growth, accounting for 50% of total exports and generating around 15% of GDP in 2022.
“The decline in the high-tech sector may not be unique to Israel, but the industry’s high share of GDP is now weighing on economic growth,” Hapoalim economists wrote in a recent report. “Unlike Moody’s, it is reasonable to assume that S&P will also note the economic risks and the deterioration in the fiscal situation (…) they may place less emphasis on the risk of the judicial reform, in light of the ongoing negotiations.”
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
