Israel - Economic forecast summary

Economic growth is projected to strengthen to above 3ΒΌ per cent in 2018 and 2019. Domestic demand will 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. With the somewhat stronger external environment, exports are also picking up as the shekel has stabilised at least temporarily.

With rising wage pressures, the authorities should move ahead with a progressive withdrawal of monetary stimulus, once inflation becomes entrenched in its target range. A gradual tightening would also moderate housing market tensions. Budgetary expansion in 2017-18 could curb declining government debt, but higher spending on education and training, health and pensions will promote more inclusive growth.

As house prices continue to increase rapidly, the authorities should maintain prudent macro-prudential policies. The risks of unfavourable developments in the real estate market remain high, and the banks are heavily involved in this sector. Continued public debt control and wide budgetary margins are needed given Israel's particular geopolitical situation.