Regional Analysis 2020 Israel

Israel Market Review 2020

Israel’s construction industry is expected to record positive growth over the 2020-2023 period, driven by the government’s plans to upgrade the country’s transport infrastructure.

7.8%
CAGR to 2023
3%
GDP growth expected in 2020

Israel Market Review

The World Bank expects Israel’s GDP to trend around US$392 billion in 2020, marking a 3% growth rate for the year and following the 3.2% growth seen in 2019. Around 3% growth is also projected for 2021 by the OECD. Research and development (R&D) is a huge part of the Israeli economy, accounting for a spend equivalent to 4.3% of its GDP , versus an OECD average of 2.4%. This is reflected in the actions of multinational companies such as Intel, Microsoft and Apple, building their first overseas research and development facilities in Israel.

Pitching itself as the ‘promised land’ for foreign investors, Israel actively seeks new investments far beyond the Mediterranean Sea. FocusEconomics noted Israel’s strong trade and investment ties outside of the Middle East insulate Israel from regional geopolitics and socioeconomic instabilities. The economy of Israel is technologically advanced and primarily knowledge-based, with the latest UN Development Index report placing it in the category of ‘Very Highly Developed’.

Domestically, political uncertainty will continue to into Q1 of 2020, but despite an unprecedented call for a third election in 12 months, business and consumer confidence remain solid. The OECD has noted exports have been holding up well with low interest rates, and the start of Leviathan gas exports will support activity. Overall economic growth remains robust, industrial production is resilient and expanding at a healthy rate, while inflation slowly rises towards the lower half of the Bank of Israel’s (BOI) 1%-3% target range. The IMF reported a further increase in inflation is expected in the next few years, although together with uncertainties around rising wages and increased competitive pressures, the outlook is subject to risk from global growth. Monetary policy remains cautious, with the interest rate of 0.25% unchanged since 2018, and the Bank of Israel has indicated that future interest rate rises will be gradual. 

The economy is at full employment, the labour market continues to perform well, with the unemployment rate near its historical low of about 4%. The executive report by the IMF states, “the tight labour market pushed business sector wage rises up to 4.3% in 2018, from 2.9% in 2017”. A new Government would be wise to focus on preserving fiscal margins, while implementing structural reforms to enhance social cohesion and productivity, as recommended by the OECD. It was also noted by the OECD that action to improve public transport, infrastructure boost competition and enhance training and education, especially in Israeli-Arab and Ultra-Orthodox communities, would bolster budget deficits to more sustainable levels. This in turn would help to alleviate the high level of poverty that remains widespread among these disadvantaged groups. Growth could be stronger over the coming two years with the start of Leviathan gas exports to Egypt, improving the trade balance and further reducing the energy imports.

According to Constrack360, the building construction industry in Israel is expected to record a CAGR of 7.8% to reach ILS138.0 billion by 2023. Israel’s construction industry is expected to record positive growth over the forecast period (2020-2023), driven by the government’s plans to upgrade the country’s transport infrastructure. The industry is consequently expected to rise from a value of $41.3 billion in 2018 to $47.0 billion in 2023. Residential construction was the largest market in the Israeli construction industry and is expected to retain its position over the forecast period.

Contributor: Shay Dahan, Ashley Baum

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