The OECD said that the Israeli economy rebounded strongly in 2021, beating forecasts, citing the country’s ongoing booster vaccination campaign, a recovering labor market, and a booming local tech sector.
“Economic activity rebounded strongly in 2021 and GDP is projected to grow robustly by 6.3% in 2021, 4.9% in 2022 and 4% in 2023,” the OECD said in its December 2021 Economic Outlook report published Wednesday.
Israel’s recovery “could be slower if the health situation deteriorates again, or the increase in inflation is stronger or more persistent than assumed in the projections,” the OECD warned.
Israel weathered the fourth wave of the pandemic well this summer, quickly tightening some restrictions and launching a booster vaccination campaign that has seen over 4 million people get a third dose of the shot, according to Health Ministry figures. Last week, Israel began offering vaccines to children ages 5-11, with initial figures from health providers indicating they are being inoculated at a faster pace than when shots were okayed for kids between 12 and 15.
In response to the discovery of the Omicron variant last week, the country reimposed an entry ban on tourists via air travel on Sunday for the next two weeks, at least. The move dealt another blow to the ailing tourism industry, which was devastated by the pandemic and didn’t have time to bounce back.
The OECD said Israel’s labor market was recovering but the number of unemployed workers remains significantly above pre-pandemic levels. The unemployment rate in Israel dropped to 7 percent in October, from 7.9% a month earlier, the Central Bureau of Statistics said last week. Before the pandemic, the unemployment rate stood at about 3.5%.
The withdrawal of government support “should be gradual, given still substantial uncertainties about the outlook and high unemployment,” the report noted. “Stepping up retraining and job-search support can help the unemployed transition to new jobs and avoid unemployment becoming structural.”
The OECD projected that the unemployment rate will stay above pre-pandemic levels until the end of 2023, which will affect wage growth.
Meanwhile, consumer price inflation accelerated to 2.3% in October 2021, mainly on the back of rising energy, food, and housing expenditure prices. The Bank of Israel said last week that the country’s inflation expectations were within its target range of 1-3%.
The report said the Israeli government has enjoyed “strong revenue growth, driven by buoyant activity in the high-tech and real estate sectors,” as well as the phasing out of most COVID-19 emergency support measures, and that authorities now target a central government budget deficit of 3.9% in 2022, down from around 11.6% in 2020.
In addition, the government’s recent passage of the budget, which includes key reforms such as infrastructure investments, streamlining licensing requirements and lowering tariffs, could “foster competition, business dynamism and productivity growth,” the OECD said in the report. “More investment in pre-school education would improve skills and make growth more inclusive,” it added.
The organization also noted Israel’s planned introduction of carbon pricing in the medium term which it said “will help reach the new and more ambitious greenhouse gas emissions reduction targets more cost-effectively and should be complemented by removing barriers to the expansion of renewable energy and improving energy efficiency.”
The OECD forecasted world GDP to rebound to 5.6% this year, contract to 4.5% in 2022, and moderate to 3.2% in 2023. The US economy will grow 5.6% in 2021, 4.5% in 2022 and 3.25% in 2023. The Euro area will likely see global growth of 5.2% in 2021, and G20 nations will see 5.9% in growth, according to OECD forecasts.
The organization said that although the global recovery from the pandemic continues to progress, it has also “lost momentum and is becoming increasingly imbalanced.”
While parts of the global economy are rebounding quickly, “others are at risk of being left behind, particularly lower-income countries where vaccination rates are low, and firms and employees in contact-intensive sectors where demand has yet to recover fully,” said the OECD.