With Minister of Finance Bezalel Smotrich in Paris for a gathering of OECD finance ministers, the organization has published its latest Economic Outlook. The report, published twice a year, presents the global economic situation and a "Snapshot" of each member country.
The OECD estimates that Israel’s economy will grow by 2.9% in 2023 and by 3.3% in 2024. In the previous Economic Outlook, published in November, the organization’s estimates were for 2.8% growth in 2023 and 3.4% growth in 2024. The Bank of Israel’s growth estimates are 2.5% for 2023 and 3.5% for 2024.
Among the risks to its forecast, the OECD mentions security incidents and the internal conflict over the government’s plans for overhauling the country’s legal system. "Heightened security incidents and continued political tensions around the judicial reform could increase risk perceptions, lead to tighter financial conditions, and weigh on business sentiment and investment," the report states.
The OECD notes that the state budget approved two weeks ago raises public expenditure. "The budget for 2023 and 2024 foresees some moderate increase in spending. The budget balance will turn from a small surplus in 2022 to a deficit slightly above 1% of GDP in 2023 and 2024," it says, and adds "Fiscal prudence is needed to avoid adding to inflationary pressures".
The report’s main headline is "Economic activity is moderating but remains robust", but it notes that investment in Israeli technology firms has declined substantially from the levels seen in 2021 and 2022. In addition, "The shekel has depreciated in the first five months of the year and the stock market has markedly underperformed global indices."
The OECD’s analysts estimate that Israel’s inflation rate will abate to 3% in twelve months’ time, but stress that the Bank of Israel should maintain a tight monetary policy.
In its recommendation, the OECD report devotes considerable space to Israel’s demographic challenges. "Addressing demographic challenges, related to the rising share of population groups with weak labor market attachment, is crucial to maintain future growth and fiscal sustainability. This will require setting appropriate work incentives, better supporting working parents including by expanding child-care facilities in underserved areas, improving skills at all stages of the learning cycle, as well as facilitating mobility towards high productivity jobs and firms," it states.
On the global level, the OECD sees the world’s economy growing by 2.7% this year, and strengthening a little to grow by 2.9% in 2024. In the November report, the forecasts were somewhat more pessimistic, with global growth estimated at 2.2% for 2023 and 2.7% for 2024.
Published by Globes, Israel business news - en.globes.co.il - on June 7, 2023.
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