Israel’s economy closes out 2022 successfully, while the forecast for 2023 is lower

A slowdown in the high-tech sector and global economic woes have contributed to Israel’s lower economic forecast for 2023

Israel’s economic forecast for 2023 has been revised downwards.

The chief economist at the Israeli Ministry of Finance, Shira Greenberg, has revised the forecast for the country’s gross domestic product growth in 2023, which was first made in June, from 3.5% to 3%. This is in line with the Bank of Israel’s forecast, while the Organization for Economic Co-operation and Development (OECD) expects Israel’s GDP to grow by just 2.8%.

In 2022, Israel recorded strong GDP growth of 6.3%.

Gross domestic product refers to the value of all final goods and services produced within a country in a given year.

An Israel Finance Ministry official told The Media Line that high GDP growth forecast for 2022 was “bolstered by a tight labor market, with unemployment and participation rates returning to around pre-pandemic levels, the strong performance of the high-tech sector and supported higher-than-expected tax revenues, resulting in a government budget surplus for the first time in many years.”

She adds that although the Bank of Israel’s inflation target has been exceeded, “Israel’s inflation rate is relatively low compared to other countries.”

Eytan Sheshinski, Sir Isaac Wolfson Professor Emeritus of Public Finance at the Hebrew University of Jerusalem, told The Media Line that “Israel has done fantastically well in 2022, with an unprecedented growth rate of 6.3%.”

He adds that Israel’s GDP grew at an average annual rate of about 4.3% between 2021 and 2022, the highest average in the OECD. “It’s a very good record,” he notes.

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The reason for the constant growth is above all the high-tech sector, says Sheshinski. Within this sector, the real drivers of growth have been the startups, which brought in $26 billion that year, he adds.

We are aware of the economic risks and challenges ahead

While Israel’s economy remains strong, the finance ministry official says, “we are aware of the economic risks and challenges that lie ahead.” These include the weakening global economy, rising inflation, tightening monetary conditions and geopolitical risks, she says .

She adds that forecasts for global GDP growth in 2023 have come down due to Russia’s war against Ukraine, which also impacted the forecast for Israel’s economy.

Sheshinski adds that despite the Treasury and Bank of Israel GDP growth forecast forecasting growth of around 3%, he expects it to be even lower.

“I think next year will be very different; The Bank of Israel is forecasting a growth rate of around 3% in 2023, and I think it will be even lower, around 2%,” he said due to multiple conditions.

Sheshinski foresees a slowdown in the high-tech industry. “A lot of people are getting laid off or laid off from their jobs in the high-tech sector,” he said.

He also expects the real estate crisis in the country to continue. “In 2022, about 70,000 housing units were sold, and now it’s back to 55,000, which was last year’s figure,” he said, noting that over the long term Israel will need at least 70,000 new housing units per year to keep up with the population growth in the country Keep up. “But now it’s going down to 55,000 units because of higher interest rates,” he added.

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What’s worrying, Sheshinski points out, is that if the economy grows by 2% while the population grows by more than 2.5%, “that means per capita income will go down, so will the standard of living in Israel.” decrease on average. Of course it will not be distributed evenly.”

As a result, the standard of living will fall on average, which will affect consumption and thus the economy, he explains.

On the tax front, according to the Treasury Department official, “it is very unlikely that the trend of high tax revenues will continue in 2022-2023, which would pose a fiscal challenge for the next administration.”

Sheshinski believes there is not much the government can do to ease the situation.

But what the government can do, he says, is invest in infrastructure and create projects to bring about structural changes in monopoly-related industries.

“I would focus on making some structural changes in sectors that aren’t competitive and thereby lowering the cost of living,” he said.

Sheshinski says he doesn’t see the new government investing as much in infrastructure as needed.

“I don’t see any plans for proper investments, so I’m pretty pessimistic about the prospects for next year,” he said.

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