Thanks to a very high rate of inoculation and the reopening of the economy since mid-February, GDP is projected to grow robustly by 5% in 2021 and 4.5% in 2022. The removal of supply restrictions, pent-up demand, the withdrawal of some excess savings accumulated in 2020 and a gradually improving labour market all support strong consumption growth. Investment and external demand are set to strengthen as uncertainty fades and vaccinations progress globally, while high-tech services exports will continue to grow robustly.
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.