Israel’s economy will continue to grow substantially, the Organization for Economic Cooperation and Development (OECD) shows in a new report.
Israel’s economic growth is projected to strengthen to above 3.25 percent in 2018 and 2019, the OECD said in its quarterly outlook report published Tuesday.
Domestic demand would be supported by accommodative fiscal and monetary conditions, the development of new gas fields and higher wage increases due to the persistence of low unemployment, according to the report.
Domestic demand remains the main driver of growth, the report said, noting expansionary macroeconomic policies and a strong labor market, and the fact that with the unemployment rate down to almost 4% and rising skill shortages, wages have picked up and contributed to private consumption gains.
Furthermore, with rising wage pressures, authorities should move ahead with a progressive withdrawal of monetary stimulus, once inflation becomes entrenched in its target range of 1-3%, noting that a gradual tightening could also moderate housing prices.
The report warned that as house prices continue to increase rapidly, the authorities should maintain prudent macro-prudential policies. Risks of unfavorable developments in the real estate market remain high, it said, noting that banks are heavily exposed to the sector.
Thanks to improved global economic conditions, exports were picking up despite the appreciation in the shekel. The local currency has stabilized in the second half of the year.
The OECD also said that Israel needs to take further steps to creating a more inclusive economy, stating that budgetary efforts to strengthen social cohesion and growth must continue while maintaining public debt control. It also called for reforms to improve infrastructure, particularly in public transport, the functioning of product markets and the training and education of disadvantaged groups, especially in Israeli-Arab and ultra-Orthodox communities.