Israel’s prospects for prosperity were somewhat less exuberant on Tuesday, after the Organization for Economic Cooperation and Development (OECD) revised downward its forecast for the country’s growth rate from 3.5 percent in 2019 to 3.1 percent, and is now forecasting 3.3 in 2020.
The OECD’s new forecast was consistent with similar assessments by the International Monetary Fund (IMF) and the Bank of Israel Research Department. The OECD announcement was part of a broader report on global growth, following growing geopolitical tension and the escalating trade war between China and the U.S.
Mitigating the negative impact of the OECD forecast was its acknowledgment that factors external to the Israeli economy were driving the new figures. The OECD emphasized that even after being lowered, the growth forecast for Israel is still strong and close to the economy’s potential.
But that was also accompanied by a hinted warning to the incoming Israeli government that tax increases could not be avoided in keeping the deficit down:
“The government has to renew its efforts at reforms for increasing efficiency in the public sector and the tax system in order to bolster its revenues,” the section of the report on Israel states.
“The budget deficit will increase far beyond the targets set for 2019 and 2020 if the government does not undertake new consolidation measures,” it continues. “The new government must focus on conforming to the fiscal frameworks. That requires restraint in government spending, streamlining, and increasing tax revenues, among other things, by cutting tax exemptions, such as the VAT exemption for fruits and vegetables.”