The biggest challenge facing Netanyahu's government is the economy - editorial

Boosting the economy is, perhaps, the biggest challenge facing the new government.

 LIKUD PARTY leader and head of opposition Benjamin Netanyahu visits Jerusalem’s Mahaneh Yehuda market in October 2021. (photo credit: YONATAN SINDEL/FLASH90)
LIKUD PARTY leader and head of opposition Benjamin Netanyahu visits Jerusalem’s Mahaneh Yehuda market in October 2021.
(photo credit: YONATAN SINDEL/FLASH90)

Now that members of the new government have taken care of themselves in terms of portfolios and legislation, they should waste no time in taking care of the citizens of Israel, particularly when it comes to their pockets and the economy.

If you read The Jerusalem Post’s Business & Innovation section on Tuesday, you might have been struck by these two upbeat headlines: “Israel is world’s fourth-best economy” and “Israel’s exports rose sharply in 2022.”

On the other hand, two other headlines signal the economic challenges that lie ahead: “CEBR: World economy set for recession in 2023” and “Slowdown hits high-end housing.”

As the new Netanyahu government prepares to be sworn in, let’s first give credit to the outgoing Lapid government for successfully steering the economy in troubled waters. Evidence of this lies in The Economist’s ranking of Israel as the fourth-best performing economy among 34 Organization for Economic Cooperation and Development (OECD) countries in 2022.

The respected British weekly’s ranking is based on an overall score measured by five economic and financial indicators: gross domestic debt (GDP), inflation, inflation breadth, stock market performance and government debt.

BENJAMIN NETANYAHU is keenly aware of history and attuned to his place in it. (credit: MARC ISRAEL SELLEM/THE JERUSALEM POST)BENJAMIN NETANYAHU is keenly aware of history and attuned to his place in it. (credit: MARC ISRAEL SELLEM/THE JERUSALEM POST)

Israel’s economy grew at a projected rate of 6.3% in 2022, according to Finance Ministry estimates, compared with a projected GDP growth of 3% among world economies for this year, according to the OECD. Shira Greenberg, the chief economist at the Finance Ministry, recently modified Israel’s forecast for 2023, which was first determined in June, from 3.5% to 3%. This is in line with the central bank’s forecast, while the OECD expects Israel’s GDP to grow by only 2.8% next year.

Israeli exports, which comprise some 30% of the country’s economic activity, have increased by more than 10% to record highs of at least $160 billion this year, according to a conservative estimate published on Sunday by the Economy and Industry Ministry’s Foreign Trade Administration (FTA).

“The interesting, important and encouraging statistic is that the increase in exports extends to almost all industries,” said FTA Director Ohad Cohen. “The global economic crisis has not harmed Israeli exports since the composition of our exports is very diverse, both in terms of markets in many countries, some of which are new to us, and also in what we sell.”

A global recession in 2023?

At the same time, the new government must take note that, according to the Center for Economics and Business Research (CEBR), we may be facing a global recession in 2023.

“It’s likely that the world economy will face recession next year as a result of the rises in interest rates in response to higher inflation,” said CEBR’s director and head of forecasting, Kay Daniel Neufeld.

One indicator of this is that as property prices soar in Israel, even high-end housing has been hit. According to Globes, while 224 homes worth more than NIS 10 million have been sold during 2022, this is less than half the number in 2021 and 2023 is likely to see even fewer deals.

Despite the relatively good shape of the Israeli economy, Israeli citizens have experienced the challenges of steep price rises in basic goods and services over the past year. The Electricity Authority announced the latest hike just last week, saying electricity prices for household consumers would rise by 8.2% starting on January 1, 2023.

At the Globes Israel Business Conference in October, then-opposition leader Benjamin Netanyahu presented his plan to “freeze” four items that generate inflation – electricity, fuel, water and local taxes.

“I plan freezing all four and creating a reversed circle,” Netanyahu said. “This would influence all prices in the economy. Where are the sources for this? We will easily do it. There is a tax surplus of NIS 60b. In addition, we are taking gas out of the sea. Royalties will reach NIS 10b. by the end of the year, and that will easily cover it.”

As soon as he takes over as prime minister, we expect Netanyahu to honor his campaign pledge. More than that, the new government together with the Bank of Israel should draft a new economic plan to harness inflation, reduce the cost of living and housing, invest in infrastructure and encourage the expansion of trade with existing and new partners. Boosting the economy is, perhaps, the biggest challenge facing the new government.