CPI up 0.3% in March
In its annual report on Israel, the IMF says unless unemployment is tackled in the haredi and Arab sectors, growth will slow sharply.
Even as the IMF praises Israel's economy and believes that the real estate market is headed for a soft landing, it calls on the government to take immediate measures to integrate haredi (ultra-orthodox) men and Arab women in the labor market, or else, it predicts, economic growth will slow sharply in the medium term.
The IMF Article IV Consultation Staff Report for 2012 recommends that that the government set a target of 75.6% participation in the labor force by haredi men and Arab women aged 20-64, and a general target of 60% participation by these communities. It notes that Israel's participation in the labor force is very low at 56-58% - among the lowest of OECD states.
The IMF states, "Participation rates among the Arab-Israeli and haredi groups need to rise to tackle poverty and maintain the medium-term growth potential of the economy. This requires further reform of incentives and labor market institutions." It adds, "Inequality and poverty - both already high - are set to rise further reflecting low participation and rapid growth of the Arab-Israeli and haredi communities… If continued, participation and demographic trends in minority communities will soon significantly lower the potential growth of the economy, with implications for overall income growth, inequality, and fiscal sustainability." It notes that the participation rate for haredi men in the US and UK are on par with the general population.
The IMF concludes, "Haredi and Arab participation problem has already caused poverty. If not addressed, this will also cause growth to slow sharply in the medium term. In both cases, low employment rates appear to reflect high marginal tax facing these communities, and high reservation wage. Furthermore, both contributed to lowering human capital acquisition. Solutions should address all these problems quickly, because growth and fiscal implications are urgent."
The IMF predicts 2.8% GDP growth for Israel in 2012 and 3.8% growth in 2013. It notes the soundness of Israel's economy during the global economic crisis of recent years, but is highly critical of the government with regard to social gaps and the labor market.
"The quality of infrastructure in Israel is below the OECD average. Israel scored highly among telecommunication indicators, but relatively poorly on physical infrastructure. Poor transport infrastructure is one of the obstacles to regional Arab communities’ participation in the labor market.
"If these poor outcomes for minority groups are not resolved, Israel will face a considerable crunch in public spending. The minority groups are rapidly becoming an increasing share of the population. If employment and productivity rates are not lifted, Israel’s potential GDP will be affected, with severe flow through impacts on the amount of civilian expenditure."
On the matter of social inequality, the IMF says, "Social protection outcomes in Israel leave room for improvement. Israel has one of the highest levels of inequality in the OECD. Israel’s relatively high degree of market income inequality reflects the impact of the two low income groups: the ultra-orthodox men (haredi) and Arab women, who make up considerable shares of the population but have very low levels of labor force participation. This is reflected in very low market incomes of the lowest income decile which are 1/15th that of the highest income decile. While the size of redistribution from the tax transfer system (the difference between market and disposable incomes) is around average in Israel, the high starting point leaves Israel one of the most unequal countries in the OECD, after only the US, Mexico and Chile."
The IMF warns that the real estate bubble still jeopardizes stability of the banks, although the government has taken measures to reduce the danger. The IMF also now predicts a soft landing for the real estate market, rather than the hard landing it warned about in its previous report on Israel.
Published by Globes [online], Israel business news - www.globes-online.com - on April 2, 2012
© Copyright of Globes Publisher Itonut (1983) Ltd. 2012
You comment was recieved and soon will be published.
Thank you for posting your comment, which will be reviewed for publication.
Load more comments
The index reading is a surprise, as analysts had estimated March inflation at 0.1%.
Lapid seeks NIS 1b for Holocaust survivors
This budget is on top of the NIS 835 million allocated over the next five years.
Abramovich books entire Israeli hotel for Passover
"Daily Mail": Roman Abramovich booked 111 rooms in Mitzpe Ramon's Beresheet Hotel.
Govt set to approve food imports reform
Israel will adopt EU regulations, making imports of non-sensitive foods cheaper.
Regulator to move against price gouging monopolies
New Antitrust Authority guidelines define anti-competitive pricing.
Matza exports down 14%
Israel exported matza to 45 countries in 2013, including Azerbaijan, Kenya, and Sri Lanka.
"Globes"-Dun's 100 - Tel Aviv Israel's most prosperous city
Tel Aviv-Jaffa is Israel's most prosperous city in 2013, followed by Rishon LeZion, and Haifa.
IMF predicts higher growth, unemployment for Israel
The IMF predicts 3.5% GDP growth and 6.5% unemployment for Israel in 2015.
Banks supervisor worried about mortgage crisis
A recession like the one in 2002 would cause 23,000 families to struggle to meet payments.
Moshe Kahlon returning to politics
Kahlon told "Yediot Ahronot": Likud has folded the social policy banner.
Comptroller slams gov't failure on nutrition security
In 2011, 900,000 Israelis could not afford to eat properly.
Real wages fall
The average real salary fell by an annualized 0.3% in November 2013-January 2014.
Treasury plans zero import duty on cheese
The step will greatly reduce prices of imported cheeses.
Israel's fiscal deficit continues to narrow
Tax collection from real estate and the capital market rose sharply in March.
BoI warns of home price volatility
The Bank of Israel is worried that the zero VAT plan will lead to volatility in the housing market in the coming months.
Water Authority tells water cos to cut tariffs
Municipal water companies must submit streamlining plans to the Water Authority.
"You can't teach entrepreneurship"
Angel investor Zohar Gilon relies on his own judgement rather than due diligence when selecting investments.
If Rose Fostanes played basketball
Reforms in regulations for foreign caregivers are welcome, but don't go far enough.
Antitrust Authority disappoints on gas competition
The only new company that will compete against Tamar and Leviathan will own less than 8% of Israel's proven gas reserves.
When innovation means a refrigerator
Jamshyd Godrej believes economic development in India must go hand in hand with environmental and social awareness.
Prof. Zvi Eckstein supports NIS 3.30-3.40/$ floor rate
The former deputy Bank of Israel Governor is the first senior figure from the financial system to advocate a floor rate.
2013 boom year for Israeli high-tech
In the first half of the year, there was a 52% rise in demand for mobile and web developers, and salaries are up as well.
Strong shekel forces Israeli manufacturers abroad
Israeli manufacturers tell "Globes" they are losing money due to the current strength of the shekel.
"Ending QE3 will harm the economy"
Prof. Richard Clarida will tell "Globes" Israel Business Conference that the main risk to the US economy is its political system.
Israel offers favorable tax regime for companies
"Globes" and Baker Tilly Israel accountants found Israel's tax benefits are among the most attractive in the West.
Slowdown will worsen
The vested interests that continue to claim that the economy is improving are deceiving the public, says Eyal Horowitz.
Can the US maintain growth after QE3?
Leading economists will discuss "The US: catch 22 the zero interest rate" at the "Globes" 2013 Israel Business Conference.
"The worst could still be ahead in Europe"
Prof. Charles Wyplosz will discuss Eurozone recovery at the Globes Israel Business Conference on December 8-9.
"Let capital pipelines function to full potential"
Amir Bramly argues that limited investment supply is stifling small and medium Israeli companies.