The Economy Israel’s Post-Netanyahu Government Stands to Inherit

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An end to two years of near paralysis in Israeli economic policy is in sight as lawmakers prepare to vote on Sunday on a new coalition government that would oust Prime Minister Benjamin Netanyahu.

The Alliance’s radically different views on political and security issues are likely to force them to focus on promoting an economy that runs on an outdated state budget, but free of most pandemic restrictions after a successful vaccination campaign. The Bank of Israel forecasts 6.3% growth this year and 5% in 2022. Five graphs show the challenges.

employment

Unemployment has declined since the economy got out of lockdown in March and could drop even further this month as those on leave – counted in the unemployment figures – expire and some return to work. But it’s still roughly three times the pre-pandemic level of 3.4%. Economists have criticized the government for failing to train enough workers for high performing industries like technology, where companies have thousands of job vacancies.

inequality

Two economies

Israel ranks in the bottom third of the developed nations in terms of economic equality

Source: OECD


Parts of the economy boomed during the pandemic while others were decimated. Technology companies – for years the engine of a new class of millionaires – received Record investment as more and more people have switched to new ways of working remotely. Those in the tourism and hospitality industries, who typically have lower levels of education and wages, have not been so lucky. The divergence threatens to exacerbate the already high inequality compared to other industrial nations.

Cost of living

On the rise again

Home prices rose at a “relatively rapid rate” of 4.5% last year, the central bank said

Source: Israel Central Bureau for Statistics Central


Figure out how to cut Israel’s cost of living, among other things most expensive in the OECD has confused previous governments. For example, house prices continued to rise after a brief lull at the start of the pandemic, fueled by near-zero interest rates and central bank action Make mortgages cheaper. Governor Amir Yaron says relieving the construction industry of burdensome red tape could help mitigate the impact of demand.

productivity

Persistent void

Israel has gradually improved worker productivity over the past 20 years

Source: OECD Economic Surveys, Israel, September 2020


Central bank officials have pleaded past governments to increase the productivity of the Israeli workforce and unleash economic growth. Insufficient investment in transportation and telecommunications infrastructure and protectionist measures that protect local industries from competition mean that Israel is consistently lagging behind its competitors. It was ranked 35th out of 190 countries in the World Bank Bank ranking Ease of Doing Business Index last year. That is behind Russia and Kazakhstan.

Government spending

The pandemic halted a long line of falling debt-to-GDP ratio

The new government must reform while cutting spending after Israel opened the taps last year to stabilize the economy. The debt ratio is still below that of several major economies and borrowing costs remain attractive to finance budget holes with debt. Avigdor Liberman, who is slated to become the next finance minister, has announced that it will not raise taxes and will instead focus on ways to stimulate growth.

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