IMF warns 'uncertainty' over Israel reforms may harm growth

The International Monetary Fund on Thursday praised Israel's "remarkable economic performance" in 2022, but warned "uncertainty" over controversial judicial reforms may harm growth.

After GDP increased by 6.5 per cent in 2022, growth would likely "slow down this year as it returns to potential over the medium term," the IMF's Executive Board said in a statement released as part of an annual appraisal of the country's economy.

According to the IMF's forecast, growth is expected to fall to 2.5 per cent this year.

The slowdown is caused by several factors including high inflation - five per cent in 2022 - and the right-wing government's controversial legal reforms, which have brought tens of thousands of protesters onto the streets of Tel Aviv and other cities.

"Uncertainty created by the proposed judicial reform could have a negative impact on the economy," the IMF said, calling for a "politically sustainable solution".

On Wednesday, Israel's two main opposition leaders, Yair Lapid and Benny Gantz said they were suspending their participation in negotiations to find common ground on the reforms.

Prime Minister Benjamin Netanyahu argues the changes are needed to introduce further checks on the power of the judiciary, while critics say the reforms are a threat to Israel's democracy.

Leading economic thinkers have spoken out against the reforms, while senior figures in the high-tech industry, a flagship of Israel's economy, have played key roles in the protest movement.