Analysis: Israel's judicial reform turmoil threatens economic growth, investment

Up until the end of June, however, foreign investment into Israeli equities had remained strong due to its compelling economic picture, according to data from Copley Fund Research.

Gross domestic product is expected to expand around 2.5% this year and 3% next year, but could be just 1.0% and 1.6% respectively if domestic tensions are unresolved, Morgan Stanley has warned. Mark said that many investors, as well as the key ratings agencies, had expected the government to water down the reform to a greater extent. Now that looks unlikely, investors could avoid the country.

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