For about a decade now, the exploitation of new natural gas reserves in the Eastern Mediterranean has had significant economic consequences for producing countries, and has been upgrading the region’s position on the international gas market. Egypt still dominates the sector, with significant reserves and export infrastructure, but Israeli production is increasingly impacting the region’s exports. 2022 was a very favourable year for the sector due to rising prices and European demand [...]
Israeli economic performance was particularly strong in 2022 and remained above OECD average. Growth was very buoyant thanks to the dynamism of consumption and investment, while the fiscal year should end with a surplus. Although relatively moderate, inflation accelerated during 2022 and forced the Central Bank to tighten significantly its monetary policy. Against this backdrop, which is not favourable to consumption and investment, activity should slow this year [...]
The Israeli economy goes into 2022 in a favourable position. After a strong recovery in 2021, growth is likely to receive continued support from household consumption and exports. Although inflation is rising, it remains under control, which should allow the continuation of an accommodative monetary policy. Macroeconomic fundamentals remain very favourable for the shekel, although monetary tightening in the US and a possible correction in US equity markets could slow its rise [...]
In Israel, restriction measures have been very stringent, and have severely affected consumer demand. The unemployment rate and the fiscal deficit reached record high levels in 2020. However, high-tech exports and fiscal support have softened the economic recession. A very active vaccination campaign should accelerate the recovery, but political uncertainty will continue to weigh on the fiscal outlook.
Fiscal support and the resilience of exports helped limit the economic recession in 2020. A strong recovery is likely in 2021, thanks primarily to a rapid vaccination campaign. The shekel has strengthened on the back of a growing current account surplus and massive capital inflows. The situation for public finances is more uncertain [...]
Economic growth was still robust in 2019 despite a less favourable local and international environment. Healthy external performances fuelled a significant upturn in the shekel, which in turn curbed inflationary pressures. The start-up of natural gas exports in 2020 should support this trend. Under this environment, the central bank has few policy instruments available. It resumed currency market interventions to try to curb the shekel’s appreciation [...]
The strength of internal demand remains the main engine of economic activity, which is growing at over 3% per year. This is feeding through into a resurgence of inflationary pressures, although these have been very modest so far. The budget deficit is growing but it remains within the limits set by the government. International trade is seeing some significant shifts [...]
Israel is a small (population of 8 million), diversified and open economy (exports account for 40% of GDP). It is an OECD member. The standard of living of Israelis is one of the highest in the region with an average wage close to that of European countries. Activity in the US and in the Eurozone is a strong driver of Israeli GDP growth, and export diversification towards Asia is progressing.
Fiscal deficits are recurrent but are declining and easily financed through local and external markets. External accounts benefit from export performance in hi-tech services and will continue to improve with the development of gas production. Foreign direct investment (FDI) inflows are large and concentrated in the hi-tech sector. The banking and financial sectors are at a moderate stage of development and benefit from relative isolation from international capital market volatility. Income inequality and a relatively large proportion of the population below the poverty line are among the main issues the government has to face.
Israel’s territory is bordered by countries with security issues. Given a relatively diversified economy, development of the gas sector, sustainable investments in R&D to support competitiveness, and sensible economic policy, prospects are good for the Israeli economy. The shekel (ILS) tends to appreciate given recurrent and sizeable export revenues, which could be damaging to exports amongst non-hi tech industries.
