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The 2016 pick-up in growth should continue, reaching 3¼ per cent in 2017-18. Support from slight budgetary easing, very low interest rates and measures to support the low-paid should continue to stimulate domestic demand and employment. However, the ongoing weakness of the international environment and the impact of exchange rate appreciation on foreign trade are projected to hold back export growth.
So long as inflation remains low, an accommodative monetary policy remains appropriate to damp currency appreciation. The rise in mortgage rates induced by the macro-prudential measures adopted by the Bank of Israel to stabilise the property market is welcome. Reforms designed to increase competition in banking should be extended to other sheltered sectors (such as farming) to enhance supply and productivity and foster catch-up. Lowering the regulatory burden on businesses by simplifying complex administrative and licensing procedures should be further promoted.
With the economy close to full capacity, the mild budgetary expansion planned for 2017 should only have a small positive and temporary effect on activity without excessively reducing the budgetary leeway achieved through the consolidation of previous years. Public finances could nevertheless play a greater role in stimulating growth and making it more inclusive, by shifting the structure of spending towards boosting investment and promoting efficiency in public transport and education.
Economic Survey of Israel (survey page)