OECD Cuts Israeli Economic Growth Forecast for 2015

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Shoppers packing the Azrieli Center mall in Tel Aviv.
Shoppers at the Azrieli Center mall in Tel Aviv. Domestic demand is expected to rebound.Credit: Ofer Vaknin

Israel’s economy is expected to expand 3% next year and 3.5% in 2016, according to a revised forecast by the OECD.

The international economic development group had predicted in May that the economy would grow 3.5% next year.

“After a pronounced but temporary weakening in 2014, growth is projected to rebound to about 3% in 2015 and 3.5% in 2016, which should avert any rise in unemployment,” said the OECD, of which Israel is a member.

It said the weak shekel and domestic consumption would help boost the economy.

“The rebound in domestic demand that is expected to follow the end of the Gaza conflict, the projected strengthening of the external environment and the recent weakening of the exchange rate will sustain activity,” it stated.

Israel’s record-low interest rates and a lack of cuts in next year’s budget should also help, the OECD said, adding that the Gaza war cost the economy some 0.3% in terms of growth this year, mainly due to decreased tourism and consumption.

The group called on Israel to continue its expansionary monetary policy, but stressed the need to keep the roaring real estate market from overheating as a side effect. The OECD also praised the government’s fiscal restraint.

“The authorities’ commitment to resume fiscal consolidation in 2016 and to pursue the goal of reducing government debt is welcome,” it said, adding that the government must not cut back further on education and welfare.

“Civilian budget expenditures, notably already relatively low education and social spending, should be protected from cuts as much as possible,” it said.

The OECD predicts that Israel will have a budget deficit of 3.4% of gross domestic product next year, partly due to increased defense spending and the planned VAT exemption for some first-time home buyers.

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