Economic outlook, analysis and forecasts

Israel - Economic forecast summary (June 2015)


Economic growth slowed in 2014, picked up strongly at the end of the year and should strengthen to around 3.5% in 2015 and 2016, helping to keep unemployment low. Lower oil prices, further cuts in interest rates and a significant revaluation of the minimum wage should shore up domestic demand, while the gradual improvement of the global economy boosts exports.

An accommodative monetary policy is still appropriate to support current growth and prevent undesirable appreciation of the shekel. But the likely temporary nature of the price falls in early 2015 argues against further relaxation involving unconventional measures. The public debt reduction policy is still needed to increase the room for fiscal manoeuvre, but it must draw more on revenue increases, and the current rule constraining spending should be reviewed. Structural reforms are also crucial to enhance competition on product markets and formal education and skills, especially among the Ultra-Orthodox and Arab populations, to stimulate productivity and to make growth more inclusive.

Increased investment in infrastructure – especially public transport and the natural gas distribution network, but also education – is needed to lift some of the barriers to private investment and boost potential growth. The government should pursue efforts to improve the co-ordination of public intervention in the property sector to better respond to housing demand by increasing supply and thus reducing prices.

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