Economic activity rebounded strongly in 2021 and GDP is projected to grow robustly by 6.3% in 2021, 4.9% in 2022 and 4% in 2023. The progressing booster vaccination campaign, a gradually recovering labour market and fading uncertainty will support domestic demand. Strong growth of high-tech services exports will continue. The recovery could be slower if the health situation deteriorates again, or the increase in inflation is stronger or more persistent than assumed in the projections. Growth could be stronger if accumulated savings are withdrawn more quickly.
To build a resilient and strong recovery, policy should focus on upskilling and education. The COVID-19 crisis threatens to aggravate Israel’s long-standing challenges of high poverty, especially among the Ultra-Orthodox and Arab Israelis, and wide productivity disparity between its vibrant high-tech sector and more traditional and sheltered sectors, which employ most of the workforce and account for most of the productivity shortfall vis-à-vis the best performing OECD countries.
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2021 Structural Reform Priorities
Traffic congestion is a major problem in Israel. Costs of congestion are estimated at around 2% of GDP, above levels in other high-income economies. The availability of public transport is being increased to tackle the problem. However, it will take time to reap the full benefits of these investments. To provide a near term solution, an Inter-Ministerial Technical Committee is exploring the introduction of congestion charges. This report provides insights into the effectiveness of congestion charging systems and identify options that Israel could consider for the design and implementation of an effective congestion charging system. The report is the result of the work of an interdisciplinary OECD team bringing together the Centre for Tax Policy and Administration, the Economics Department, the Environment Directorate, the International Transport Forum and the Public Governance Directorate.