In 2017, GDP grew by 3.4%, and this figure is projected to strengthen to over 3.5% in 2018 and 2019.
Israel Market Review
Israel has been named as the nation with the world’s largest number of startup companies. In 2017, GDP grew by 3.4%, and this figure is projected to strengthen to over 3.5% in 2018 and 2019. It is not surprising that the High-tech sector is of particular significance for the Israeli economy, with R&D representing 4.9% of GDP spending. According to the Central Bureau of Statistics, investment in the construction industry in 2017 amounted to NIS136 billion (New Israeli Shekel). The IMF expects growth to remain at about 3.5% until Q4 2019 due in part to the completion of major projects, but that could slow to 3% thereafter.
The unemployment rate continues to progressively decline from 5.3% in 2015 and currently stands at 3.6%, increasing wage pressures in the economy. The geopolitical landscape also shows signs of tension, which could adversely affect the economy. In the meantime, capital spending and planned investment in the High-tech sector and new development plans in the pipeline for offshore gas fields are underway.
The IMF expects growth to remain at about 3.5% until Q4 2019 due in part to the completion of major projects, but that could slow to 3% thereafter.
The OECD has noted that monetary authorities need to stand ready to progressively increase interest rates once inflation reverts back within the Bank of Israel (BOI) targeted range of 1-3%. Inflation remained low at 0.4% year-on-year in April 2018, due to reductions in tariffs and customs duties.
The executive report by the IMF states, “Housing price increases have slowed to 2%, but affordability remains a problem”. There are a number of challenges that Israel faces to maintain sustainable growth that are evident in the social disparities. These require robust structural reforms to improve the productivity and participation of the ultraorthodox and Arab-Israeli communities. This, coupled with increases in spending on education and healthcare, could create an environment that is favourable for more inclusive growth.
The Government needs to implement rigorous reforms in education and training in the hope of reducing gaps in labour force participation and productivity, and enhancing growth distribution. The construction industry continues to be one of the main growth engines of the Israeli economy, amounting to NIS66.8 billion in 2017.
Contributor: Ashley Baum