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Strong growth is projected to continue, but to cool slightly through 2020. Expansionary fiscal policy and low interest rates will boost domestic demand. The current account will nevertheless remain in small surplus. Inflation will rise towards the centre of the Bank of Israel’s target range.
The planned budget deficits are high for this stage of the cycle. Steady fiscal consolidation will be needed to reduce public debt relative to GDP and ensure room for manoeuvre in the next downturn. With inflation rising back into the target range and unemployment low, the monetary authorities should consider raising currently ultra-low interest rates gradually.
1. Deflated by the private consumption deflator.
Source: Bank of Israel; and OECD Economic Outlook 104 database.
Economic Survey of Israel (survey page)