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The Impact of Protests in Israel on the Economy and Investments
Protests and Controversial Judicial Overhaul
Fresh protests in Israel over a controversial judicial overhaul will deliver a significant slowdown to the country's economy, according to former central bank Deputy Governor Zvi Eckstein. Tens of thousands of people took to the streets after the Israeli Parliament advanced efforts in a bill aiming to curtail the autonomy of the country's Supreme Court. The sustained unrest is expected to have a "huge impact" on the economy and its inflow of investments.
Effects on the High Technology Sector
The ongoing protests have also led to a "huge reduction" in investments in Israel's high technology sector, which is a crucial part of the Israeli economy. Eckstein points out that approximately 40% of Israel's economic growth is generated by the high tech sector. Currently, there is an 80% decline in investment in the country's startup and growth companies, highlighting the significant negative impact of the protests.
Drop in Investments in Tech Firms
A July report by the Start-Up Nation Policy Institute (SNPI) revealed that investments in tech firms for the first half of 2023 dropped by 68% to $3.7 billion, the lowest rate since 2018. Israel's fintech sector, as well as enterprise IT, experienced the biggest declines, plunging more than 80% year-on-year. This decrease in investment is attributed to a global trend.
Israel's Ranking in the Tech Ecosystem
Another report by Israeli private equity investment group Viola stated that Israel ceded its ranking as the world's fifth best-funded tech ecosystem and fell to the 10th position. This decline in rankings further indicates the negative consequences of the protests on the country's tech sector and overall economy.
Economic Slowdown and Future Projections
Eckstein highlights the lack of growth in the Israeli stock market over the past six months, with the Tel Aviv Stock Exchange dropping almost 10% year-to-date. Based on these factors, he forecasts a large slowdown in the economy within a year, possibly leading to a recession. Israel's economy recorded a growth rate of 6.5% in 2022, but this is anticipated to slow down to about 2% or even lower in the second half of 2023. The future appears bleak as the protests continue and the government tries to pass the controversial bill, which threatens the stability of the economy.
The Impact on the Israeli Shekel
The Israeli shekel has weakened slightly since the start of the year when plans for the judicial reforms were first announced. Data from Refinitiv shows that in early June, the shekel reached a more than three-year low of 3.753 against the dollar. This volatility in the currency reflects the uncertainty surrounding the economy due to the ongoing protests.
Prime Minister's Response
Israeli Prime Minister Benjamin Netanyahu previously dismissed concerns about compromised investor confidence, referring to it as a "momentary problem." He affirmed that the fundamentals of the Israeli economy remain "very powerful." However, the continued protests and potential economic slowdown suggest that the situation may be more complex than initially believed.
Conclusion: The Impact of Protests in Israel on New Businesses
The protests in Israel and the resulting economic slowdown pose significant challenges for new businesses looking to establish themselves in the country. The high technology sector, which plays a crucial role in Israel's economy, has seen a significant reduction in investments due to the ongoing unrest. With a decline of 80% in investment in startup and growth companies, it becomes increasingly difficult for new businesses to secure the necessary funding for expansion and development.
Furthermore, the drop in investments in the tech sector has had a direct impact on Israel's ranking in the global tech ecosystem. Falling from the fifth to the tenth position in terms of funding, Israel's tech industry is facing a challenging environment that may deter potential investors from considering new ventures in the country.
The economic slowdown projected by industry experts, including former central bank Deputy Governor Zvi Eckstein, paints a bleak future for new businesses in Israel. With a potential recession looming due to the protests and the controversial judicial overhaul, the stability and growth prospects of the economy are under threat. This uncertain economic climate could discourage entrepreneurs from launching new businesses and hinder the success of existing startups.
Additionally, the volatility of the Israeli shekel adds another layer of uncertainty for businesses operating in the country. A weakened currency reflects the market's lack of confidence and raises concerns about potential risks and instability for businesses, particularly those engaged in international trade.
While Israeli Prime Minister Benjamin Netanyahu has downplayed concerns about compromised investor confidence, the protests and anticipated economic slowdown present a more complex reality. New businesses will need to carefully assess the risks and challenges posed by the ongoing protests and their impact on the overall economy before making investment decisions in Israel. Building resilience and establishing contingency plans will be essential for businesses aiming to navigate these turbulent times successfully.
Article First Published at: https://www.cnbc.com/2023/07/14/israels-economy-to-see-recession-next-year-says-former-deputy-central-bank-governor-.html