Yesterday, Ministry of finance chief economist Shira Greenberg released forecasts that had been presented at the latest meeting of the Consensus Forum, in which Ministry of Finance representatives consult economic experts from both the private and public sectors. The conclusions of the discussion, which took place earlier this month, include macro forecasts for metrics such as growth, inflation, unemployment, interest rates and exchange rates, and also an important disclaimer that makes clear why it is by no means certain that all the forecasts will materialize.
As the drafters of the document at the Ministry of Finance obliquely hint, at least some of the forecasts for the coming year are still in the realm of educated guesses, until the new government’s plans become clear. "Government policy, particularly fiscal policy, that will be introduced in Israel in the period of the forecast will have substantial consequences for the local economy, and at this time uncertainty as to this policy still prevails," the document states at the end of the survey in listing risks.
The forum experts see moderate growth, of 2.7%, for Israel in 2023. This is lower than the Ministry of Finance’s own current 3% forecast, reduced from 3.5% last month. For 2024, the experts’ growth forecast is 3.3%, close to the ministry’s forecast of 3.2%.
Inflation to moderate
The forum economists expect that the rate of inflation will moderate and will return to within the 1-3% target range this year. "On average, the Consensus experts predict an inflation rate of 2.8% in Israel at the end of 2023, and 2% at the end of 2024," the survey states. This compares with inflation of 5.5% in 2022.
It would appear, though, that there wasn’t actually a consensus at the forum on the optimistic inflation forecast. Greenberg states towards the end of her survey that "Inflation in Israel has not yet changed direction, and there is a fear that it will stabilize above the target range, and opposing that there is the fear that the monetary policy in place has been too contractionary, in a way that is liable to cause a more substantial slowdown than expected."
The forum expects the shekel to continue to weaken, making it harder to reduce inflation. Nevertheless, the experts believe that "by the end of the year the shekel will resume its long-term trend of appreciation, supported by the basic factors of the Israeli economy."
What about interest rates? "There was agreement that the US Federal Reserve’s interest rate will peak at 4.9%, and will probably stay at that level until the end of 2023." The Federal Reserve rate is currently 4.5%. As far as Israel is concerned, "most of the experts estimated that the Bank of Israel rate would peak at 3.9% and remain at that level until the end of 2023." This compares with a current rate of 3.75%.
Some of the forum members dissented and said that the process of cutting interest rates might begin as early as the third quarter of 2023, but there was general agreement that even when interest rates do fall, they will not come close to the zero interest rate environment seen a year ago.
Unemployment is expected to climb a little in 2023, as a result of slower growth. The average forecast of the forum members is that the unemployment rate will reach 4.5% at the end of the year, with some predicting a rate of 5%. In December 2022, Israel’s unemployment rate was 4.3%.
Published by Globes, Israel business news - en.globes.co.il - on January 25, 2023.
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