IMF: Israeli Economy Strong for Now, but Future Needs Help

Illustration photo of the new 100 Israeli shekel note. (Nati Shohat/Flash90)

On Tuesday, The International Monetary Fund said that while current conditions in the Israeli economy are positive, the long-term needs help.

The IMF report cited strong growth, low unemployment, healthy foreign currency reserves and increasing market competition.

But the IMF analysts also cited the usual culprits in downgrading economic prospects in Israel: modest productivity, inadequate infrastructure, growing poverty and social gaps.

“Israel is enjoying strong economic growth, at 3.4 percent in 2017, supported by solid domestic demand and higher global growth. Unemployment has declined steadily, to below four percent in early 2018, supporting broad-based wage growth. Nonetheless, inflation remains below the 1–3 percent target range of the Bank of Israel (BoI), reflecting the appreciation of the shekel, increased competition including online shopping, and government measures to lower the cost of living,” the reports said.

“Israel’s growth is expected to reach about 3.4 percent in 2018, and remain around this level in the next few years, owing to the completion of major projects. Domestic and international conditions are supportive of an increase in inflation, yet significant uncertainty remains around the timing of such a rise.”

“Housing price increases have slowed to only two percent alongside a decline in turnover, but housing affordability remains a problem. In the longer term, however, Israel faces challenges to growth and stability from modest productivity growth despite its dynamic high-tech sector, sizable infrastructure needs that are especially evident in high traffic congestion, and high poverty partly reflecting the lower skills and labor participation of population groups that will rise as a share of the working age population in coming decades.”

The proposed remedies were also not novel, calling for “deep reforms of education and training to reduce the gaps in labor productivity and participation, while enhancing redistribution carefully.”

The Arab and chareidi sectors came in for the usual recommendations: “The effectiveness of schools should be increased, such as through higher standards for teachers, covering core subjects at all grades in Haredi schools, improving Hebrew teaching in Arab schools, and extending the short school day.”

No evaluation of the Israeli economy would be complete without a lament over bureaucracy and regulation, and this was no exception:

“Numerous regulations and their high compliance costs remain major impediments to competition and investment,” it said, and urged “simple and timely administration of regulations, such as a ‘one-stop shop’ that would assess all regulatory requirements within a reasonable period.”

“All proposals for new regulations should be subject to robust regulatory impact assessments,” it continued, adding that court procedures needed speeding up to allow for efficient enforcement of contracts. A special court for complex antitrust cases would also help, it said.