major macro economic indicators
|2012||2013||2014 (e)||2015 (f)|
|GDP growth (%)||3.4||3.3||3.2||3.4|
|Inflation (yearly average) (%)||1.7||1.5||-0.2||-0.1|
|Budget balance (% GDP)||-5.1||-4.2||-3.9||-3.6|
|Current account balance (% GDP)||0.2||2.5||2.1||1.9|
|Public debt (% GDP)||68.3||67.6||67.4||67.1|
(e): estimate (f): forecast
- Industry dominated by high-tech products
- Highly skilled workforce
- Political and financial support from the US and the diaspora
- Natural gas production since mid-2013 from large offshore reserves
- Resilience of the banking system
- Political fragmentation and weak coalition governments
- Stalemate in Israeli-Palestinian Negotiations Persists
- Relatively high public debt
Early parliamentary elections: B.Netanyahu retains his Prime Minister position
Protests in response to the economic and social policy of the government forced the Prime Minister B.Netanyahu to dissolve the Knesset (parliament) in December 2014 and request early parliamentary elections (17 March 2015). These elections brought the greatest number of seats to the right wing party Likud (30 out of 120), six more than the center-left Zionist Union party. B. Netanyahu, confirmed at his Prime Minister position for a fourth mandate, will have to work with a coalition government (parliamentary majority of 67 seats). The latter, which should be composed by the centrist party led by Moshe Kahlon (presumed candidate for the Ministry of Finance) and right-wing parties (eultra-nationalist as well as ultra-Orthodox formation), will have to deal with popular demands: security situation, inequality, rising cost of living and housing shortage. Thus, the new coalition government will continue to suffer from the political fragmentation of the country. It is crystallizing particularly on the dissension topics such as the law act which proclaimed Israeli state as the Jewish state and the deterioration of the country's image abroad.
Regional threats, underlined by the tensions in East Jerusalem and the conflict with Hamas, continue to undermine the security situation in Israel.
Slight resumption in growth
Despite a slight slowdown following the conflict which took place between the Israeli army and the armed factions of Hamas, which governs the Gaza strip, the Israeli economy has benefited from a strong increase in private consumption (3.9%) in 2014, especially during the last quarter. The introduction of a new green taxation regulation in 2015 led to a significant increase in auto sales in 2014. Growth should stand at around 3%, driven by investment and exports in 2015. The economy will benefit from the dynamic growth in the US, the decline in the oil price and accommodative monetary policy implemented by the central bank. In addition, the tourism sector is expected to rebound if security situation stabilizes. Furthermore, the building of the new private port of Haifa will expand the construction sector.
As to prices, the combination of lower commodity prices and lower prices of electricity and water will slow inflation, remaining close to zero in 2015. Therefore, the maintenance of a low key interest rate (0.1%) by the central bank will both stimulate prices and avoid a protracted period of deflation, but also support economic activity as the central bank policy will contribute to weaken the currency against the dollar.
Fiscal austerity and current account surplus
The recent conflict with the Gaza strip seems to have slowed the process of budgetary rebalancing initiated in 2010. The direct (growth in military spending) and indirect (contraction in activity in Q3 2014) financial repercussions linked to the conflict led to a higher than expected public deficit in 2014. B.Netanyahu wants to set up a rather liberal economic policy (privatization, tax reduction), but he will be constrained by the public finances situation which requires budget cuts. And he will have to deal with his coalition government, which should be more inclined to further state intervention and the establishment of accommodative measures (reduction of inequalities).
The current account surplus is expected to narrow slightly in 2015. Imports will continue to benefit from the reduction in oil price (about 20% of imports), and exports will be boosted by the strengthening of the US economy (first export market), as well as the increasing gas production.
Strong banking system and healthy financial position of businesses
Highly concentrated and focused on the domestic market, the banking sector is strong. It remains well capitalised and the share of non-performing loans is limited. Consequently, it has shown strong resilience to the economic ups and downs. However, this ability to withstand shocks is to the detriment of the banks' profitability, which remains weak.
Israeli businesses have been skilled at coping with fluctuations in the economic cycle and any potential credit squeeze.