Israel’s economy faces uncertain future

June 13, 2019

Shekel notes and coins

Israel’s economic figures present a very complex picture: On the one hand, the employment and wage figures are excellent, inflation is low and under control, and the country’s credit rating is consistently high. On the other hand, the deficit is high and the current government can do nothing about it. This means that the next government, which will inevitably be formed on the basis of costly coalition agreements, will be forced to cut expenditures or raise taxes — or both. In other words, the Israeli economy may have a firm footing, but its future remains uncertain.

According to the Central Bureau of Statistics, the average gross salary of Israeli wage earners in March 2019 was 11,140 Israeli shekels ($3,100) per month, 3% higher than it was in March 2018. The figures also show that from January to March 2019, the average wage increased at the rate of 4.1% annually, after a 5.4% annual rise in October-December 2018.

Employment figures are also positive. The workforce grew by more than 2% per year, and the unemployment rate is one of the lowest in the developed world, standing at only 4%. Here too, these figures have been consistent for a long time. The growth rate in 2019 is expected to be 3.2%, which is considered relatively high.

On the other hand, during that same time, the national deficit has grown considerably. This year, the deficit is expected to reach about 3.5%, while next year it is expected to reach at least 4%, or about 60 billion shekels ($16.7 billion), if the government does nothing to reduce it. A reasonable deficit is not necessarily a bad thing, when there is economic growth, as there is in Israel. It is, however, a problem when the deficit exceeds its target. Israel’s target deficit in the last few years was about 40 billion shekels ($11.14 billion), which means that the actual deficit is exceeding its target by about 20 billion shekels. If the government fails to come up with serious plans to close that gap, Israel’s credit rating could be at risk.

More ….

© Copyright JFJFP 2017