Treasury Lowers Israel's Forecasted Growth Rate for 2016

Head economist says the main reason the growth forecast has been cut is because of weak exports.

The Finance Ministry lowered its growth forecast for the year, and is now predicting that Israel’s economy will expand at a 2.8% rate.

This is less than the previous forecast of 2.9% set last September. That forecast was used to draft the 2016 budget.

The latest ministry forecast also predicts that the budget deficit will come out to 2.8% of the GDP this year.

The ministry’s growth statistics indicate that Israel’s economy expanded 2.5% last year.

Earlier this week, the Bank of Israel also released updated growth forecasts for the year. The central bank also sees growth of 2.8% this year, and 3.0% next year.

Last November, the OECD had forecast slightly more brisk growth for Israel, 3.2% for 2016.

Yoel Naveh, the head economist at the Finance Ministry, stated in the most recent report that current events in the defense and social spheres had halted the decline in public spending and in the tax burden.

He noted that the forecasts made in order to draft the 2016 government budget had been made in November, and that the numbers are very similar to those that are playing out this year.

The main reason that the growth forecast has been cut is due to weak exports, he added.

Meanwhile, figures published by the Israel Exports Institute indicated that exports of services had declined by 2.8% in 2015 relative to 2014, to $34.4 billion. This is the first time exports have decreased in six years, since 2008. The figures come from the export institute’s economic division.

Total exports of goods and services equaled $92 billion last year.

Services exports accounted for a larger portion of total exports due to an even sharper decrease in goods exports, which were down 9% from 2014, and accounted for 62.6% of all exports.

Services exports were down primarily due to Israel’s ailing tourism industry, which contracted by 6% last year to 5.4 billion shekels. Tourism has yet to recover since Operation Defensive Edge in Gaza. Beyond the security situation, the strong shekel against the ruble and euro has made vacations in Israel more expensive for would-be tourists.