eco TV Week

Israel: A mixed economic situation, but positive prospects

4/23/2021

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.

Pascal DEVAUX

TRANSCRIPT // Israel: A mixed economic situation, but positive prospects : April 2021

In Israel, the vaccination campaign is very active, one of the most active in the world. It is estimated that 60% of the total population has already been vaccinated. It has entailed an ease in restrictions and more optimism. Nevertheless, we estimate that the economic situation is mixed.

On the positive side, economic recession has been lower than expected. The drop in economic activity reached 2.5% in 2020 on average against to 4.8% on average in OECD countries. It is mainly due to the support of public expenditures and to the dynamism of exports of high-tech services.

The second positive point is that external accounts have been very solid. It is mainly due to the dynamism of high-tech exports, and above all to very strong foreign direct investments inflows. Those FDIs reached a record high level in 2020 at USD25bn against USD19bn in 2019.

On the contrary, on a more negative side we had a drop in domestic consumption. This drop was notably linked to very stringent restrictions in mobility. One of the most stringent restrictions among OECD countries. In this context we had a record high level of unemployment at 16% in 2020 against 3.8% in 2019.

The other negative point is a strong increase in fiscal deficit that led to an increase in government debt.

To conclude we can say that economic prospects are positive in the short term. We expect economic growth to be above 6% in 2021. In the first quarter of this year, we already see a decline in the unemployment rate and an increase in fiscal revenues. It is mainly due to the economic recovery. Nevertheless, we have to remain cautious. Political uncertainty is still high. It reduces the visibility on the budget and it can slow the process of reform. In the medium term, this political uncertainty can reduce potential growth of Israel.

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