Yester, the Bank of Israel annoucned that an IMF mission, headed by Mr. Bas Bakker, presented the Minister of Finance, Mr. Moshe Kahlon., and the Governor of the Bank of Israel, Dr. Karnit Flug, with its preliminary 2015 Article IV Consultation Concluding Statement on Israel’s economy. The IMF is expected to publish within two months its final report on the Israeli economy for 2015.
4 key points emerge from this report:
- Israel’s economy is performing well.
After the global financial crisis, Israel, unlike other countries, maintains its GDP growth and the creation of employment (employment rate increased in 2007 from a rate of 59% to 68%).
- Some challenges remain:
A. The fiscal deficit remains stubbornly high, leaving limited buffers to respond to shocks.
B. Negative inflation, below the Bank of Israel’s target, but housing prices continue to rise.
C. Low labor productivity and the gap with the US is widening.
D. Income inequality is among the highest in the developed countriesOutlook:
- Positive economic outlook.
Expected growth is 3% (up from 2.8% in 2014), due to strong private consumption growth. This is driven the rapid increase in employment, inear-zero interest rates, falling import prices, and the rebound from the impact of military operations last year. Inflation will turn positive, reaching ¾ percent at the end of the year and the target band next year. There is not much slack in the economy: staff judges that the output gap is near zero. In the medium term, output will grow around 3-3 ¼ percent-in line with our current estimate of potential output growth.
- Risks to the outlook are balanced.
Growth could disappoint if growth in Israel’s trading partners were weaker, geopolitical tensions in the region heightened, or the shekel appreciation continued. A sharp correction in housing prices could also slow growth. Growth could also be stronger than expected, for example, if trading partner economies recover faster or investment in the natural gas sector increases. Monetary tightening in the United States would likely help Israel, as it would exert downward pressure on the shekel, which would boost growth and inflation.The IMF is expected to publish within two months of the final report on the Israeli economy for 2015.
For the full report in English, visit the Bank of Israel.