Israel - Economic forecast summary (November 2015)


After a moderate pace in 2015, economic growth is projected to pick up to around 3¼ per cent in 2016 and 2017. This increase in activity should keep unemployment low. A rise in the minimum wage, falling oil prices and budgetary measures to stimulate the economy will support domestic demand, while exports are likely to recover with the improvement in the global economy.

Pursuing an accommodative monetary policy is appropriate to prevent an appreciation of the shekel, as long as inflation remains low and other major central banks maintain their expansionary stances. Property market tension poses a risk, however, and macro-prudential policy may need to be reinforced if necessary. The fiscal easing planned for 2016, including tax cuts and major spending increases, will make the medium-term public debt reduction objective more difficult to achieve. Stepping up structural reforms to strengthen competition in sheltered sectors would be beneficial to boost productivity and promote inclusive growth.

The commitment to reduce CO2 emissions per capita by 26% before 2030 is welcome but could be more ambitious. Introducing a carbon tax would help to meet this objective in a growth-friendly way, and pursuing public rail transport development would also reduce the costs of urban congestion. The taxation of private cars should target their use rather than their ownership, and the tax breaks associated with company cars should be abolished.

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