The Israeli economy continues to register remarkable performance, with strong growth, low and falling unemployment and sound public finances leading to the 15th consecutive year of economic expansion. Further reforms will be needed to drive down inequality and raise living standards for all Israelis, according to a new report from the OECD.
The latest OECD Economic Survey of Israel says population growth, strong economic fundamentals and the dynamic high-tech sector are underpinning today’s robust expansion. With the continuation of accommodative monetary policy in a stronger external environment and planned investments in offshore gas fields expected to spur future growth, Israel can turn its focus toward new policies that will make its economy both more efficient and more inclusive, the Survey said.
The Survey, presented in Jerusalem by OECD Acting Chief Economist Alvaro Pereira, Shai Babad, Director General of the Ministry of Finance and Yoel Naveh, Chief Economist, projects growth around 3 ½ % over the 2018-19 period. It identifies priorities for future public policy action, including further reforms to education, infrastructure and product markets that can enhance both inclusiveness and productivity.
“The Israeli economy has grown faster and more consistently than nearly any other in the OECD for the past 15 years,” Mr Pereira said. “Unemployment is at historically low levels, and the rise in people with jobs has had a significant impact on the continuing convergence of living standards in Israel with those in the most advanced economies.”
“Today’s excellent outlook offers Israel a unique opportunity to prepare for the challenges of the future, by taking steps to raise productivity, improve social cohesion and guarantee high quality of life for all Israelis,” Mr Pereira said.
Labour force participation rates, education and skill levels remain low for Israeli-Arabs and the ultra-Orthodox, or Haredim Jewish groups, contributing to Israel’s high poverty rates and low productivity, the Survey says. Better social and labour market integration of these groups, which will represent half of the population by mid-century, is crucial.
Reforming product market regulations and improving infrastructure and education should be at the core of future structural reform plans to boost productivity and enhance inclusiveness.
Enhancing training and education for Israeli-Arabs and Haredim will be essential to improve their economic opportunities and make future growth more sustainable. Reforms and more public investment in education would develop their skills, allowing them to find well-paid jobs in high value-added sectors, the Survey said.
Addressing Israel’s large infrastructure deficit, especially in public transport, would reduce the country’s considerable road congestion and poor air quality while improving access to the labour market, particularly for disadvantaged groups living in peripheral zones. Better infrastructure in disadvantaged areas, especially Arab cities, would improve job prospects and well-being.
Further strengthening product market competition will boost productivity in sheltered sectors.