03/04/2023 - Helped by its dynamic high-tech sector, Israel’s economy has rebounded strongly from the pandemic and has proven resilient to the economic impact of Russia’s war of aggression against Ukraine. Reforms to reduce labour market disparities and boost productivity would help to sustain, broaden and further boost gains in living standards.
These are some of the key findings of the latest OECD Economic Survey of Israel.
Israel posted strong growth of 6.4% in 2022. The latest OECD Economic Survey of Israel projects GDP growth at a more moderate but still robust pace of 3.0% in 2023 and 3.4% in 2024. Inflation is projected to remain elevated in 2023 at an average 3.8%, but is expected to gradually fall within the target range, averaging 2.2% in 2024.
However, global and domestic uncertainty remain high. The Survey recommends maintaining tight monetary policy along with prudent fiscal policy until inflation is durably back within the target range. Ongoing support to vulnerable households and firms affected by higher costs of living should be targeted and temporary and maintain energy saving incentives.
Sustaining and strengthening growth will require efforts to tackle underlying structural challenges such as Israel’s dual-speed economy, which exacerbates labour market disparities with a highly productive tech sector providing well-paid jobs and low-productivity traditional sectors employing the majority of the workforce in generally lower-paid jobs. The Survey recommends speeding up the adoption of digital technologies in traditional sectors and lowering barriers to competition, investment and foreign trade across the economy, for example through less restrictive business regulations and more streamlined trade procedures.
More needs to be done to reduce labour market disparities. Israel’s rise in living standards since the 1990s has been driven by steady growth in employment which is now tapering off due to an ageing workforce and a rising share in the population of groups with lower levels of employment and wages such as Arab-Israelis, where female participation in the labour market is low, and Haredim, where male participation is low.
Stepping up efforts to integrate these groups into the labour market, raising their labour productivity, and removing barriers for women to fully participate in the labour market, would support future growth in living standards, ensure fiscal sustainability and help to reduce socio-economic divides. These efforts should focus on raising educational outcomes among groups that are lagging behind, providing vocational and digital skills training, improving work incentives, including support for working parents, and removing barriers to job mobility to foster participation in high-productivity jobs.
Sustaining good health outcomes requires increasing the number of domestically trained doctors, especially in some regions, to meet the demands of strong population growth and ageing.
Finally, the Survey notes that while the carbon intensity of Israel’s economy has declined, meeting national emissions targets will require stepping up climate policy efforts. Boosting renewable energy, in particular to harness Israel’s solar energy potential, would help to accelerate the green transition.
See an Overview of the Survey with key findings and charts (this link can be included in media articles).
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