OECD Report: Israel Economy Strong, Need to Drive Down Inequality

OECD 2018 report: The Israeli economy its "remarkable performance", with strong growth, low and falling unemployment and sound public finances

 

The Israeli economy continues to register “remarkable performance”, with strong growth, low and falling unemployment and sound public finances leading to the 15th consecutive year of economic expansion, according to a new report published Sunday from Economic Co-operation and Development (OECD) Survey of Israel.

Average growth has reached 3.3% which can be partly attributed to strong population growth, which accounted for half of this impressive increase.

The report added that further reforms will be needed to drive down inequality as a result of low paid jobs in two labor sectors: the Ultra-Orthodox Jews and Arabes. Israel also needs to encourage more women to join the workforce, a key driver for reducing inequality.

“Enhancing training and education for Israeli-Arabs and Haredim will be essential to improve their economic opportunities and make future growth more sustainable,” the report emphasizes. “Reforms and more public investment in education would develop their skills, allowing them to find well-paid jobs in high value-added sectors.”

OECD’s report warned that Israel faces a risk of overheating should the Bank of Israel wait too long to start raising interest rates while it praised the central bank for hold a cooperative policy, in which the benchmark interest rate has stayed at 0.1 percent for three years while buying foreign currency from time to time to prevent an excessive appreciation of the shekel.

The reports added a warning.

“The risks of maintaining an accommodative monetary policy too long should not be neglected, as the favorable effects from the terms-of-trade gains could reverse quite rapidly. Low inflation does not seem related to weak demand, and tightening too late would increase the risks of overheating and rising wage pressures, which, with increased competition, would harm business profitability and investment.”

The Survey, projects growth around 3 ½ % over the 2018-19 period. It identifies priorities for future public policy action, including further reforms to education, infrastructure and product markets that can enhance both inclusiveness and productivity.

“The Israeli economy has grown faster and more consistently than nearly any other in the OECD for the past 15 years,” OECD Acting Chief Economist Alvaro Pereira said. “Unemployment is at historically low levels, and the rise in people with jobs has had a significant impact on the continuing convergence of living standards in Israel with those in the most advanced economies.”

“Today’s excellent outlook offers Israel a unique opportunity to prepare for the challenges of the future, by taking steps to raise productivity, improve social cohesion and guarantee high quality of life for all Israelis,” Pereira said.

Reforming product market regulations and improving infrastructure and education should be at the core of future structural reform plans to boost productivity and enhance inclusiveness.

Addressing Israel’s large infrastructure deficit, especially in public transport, would reduce the country’s considerable road congestion and poor air quality while improving access to the labour market, particularly for disadvantaged groups living in peripheral zones.  Better infrastructure in disadvantaged areas, especially Arab cities, would improve job prospects and well-being.

Working with over 100 countries, the OECD is a global policy forum that promotes policies to improve the economic and social well-being of people around the world.

 

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