OECD: Israeli economic growth to pick up in 2013

Output growth projected to drop from 3.1 percent in 2012 to 2.9% in 2013 but then rebound to 3.9% in 2014.

November 27, 2012 23:19
2 minute read.
Isreli currency.

Money cash Shekels currency 521. (photo credit: Reuters)


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Israel’s economic growth should start picking up in the first half of next year thanks to a boost in external demand, the OECD concluded in its biannual economic outlook on member states Tuesday.

Output growth is projected to drop from 3.1 percent in 2012 to 2.9% in 2013 (incorporating a 0.2 percentage-point boost from the new Tamar offshore gas field), but then rebound to 3.9% in 2014, the report said.

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The combined economic growth of all 34 OECD countries is expected to bottom out at an annualized 0.5% in the fourth quarter of 2012 and 1% for the entire year, before rising to 1.9% in 2013 and 2.5% in 2014. The euro bloc is expected to return to positive economic growth in the second quarter next year, ending 2013 with real GDP growth of 0.6% and 2014 with growth of 1.6%.

Focusing on Israel, the report predicted that electricity and food price hikes will continue to push up inflation in the short-term. If public expenditure rises in line with the legislated ceiling and revenue- raising measures yield the expected results, then the government deficit should be on target in 2013 but fall short in 2014.

Government deficit targets for 2013 and 2014 have been raised to 3% and 2.75% of GDP, respectively, replacing the initial targets of 1.5% and 1%.

“Achieving these revised targets will nevertheless prove challenging,” the report said.

It noted that the authorities have already embarked on revenue-raising measures, such as a VAT hike, increases in personal income tax and social contributions, and intensified tax collection, adding that agreement on a 2013 budget has been postponed until after the January election.


“Risks in the global economy present the greatest threat to growth,” the report said.

“In addition, geopolitical tensions remain high. There are risks surrounding budget outcomes, as the proceeds of intensified tax collection are particularly uncertain. The budget postponement and the upcoming general election add further risk.”

In its editorial, the report warned that signs of emergence from five years of global economic crisis have “more than once” given way to a renewed slowdown or even a double-dip recession in some countries. The risk of a new major contraction cannot be ruled out, it said, pointing out that a recession is ongoing in the euro area and that the US economy is performing below what was expected earlier this year.

Failure by American legislators to reach a consensus on the fiscal cliff and debt ceiling, and by European legislators to agree on management of the euro-area crisis, “could have significant consequences on the global outlook,” the editorial said.

A positive policy response is possible, it said, and it should be based on the full use of available policy tools: monetary, fiscal and structural. It suggested that the monetary policy stance should be further eased in many countries and that excessive near-term fiscal consolidation should be avoided, given high fiscal multipliers at present.

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