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.
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