The rate of economic growth in Israel in 2006-2007 will be substantially higher than that of most developed countries in North America and Europe, says the International Monetary Fund (IMF) in its bi-annual global forecast published Wednesday.
According to the IMF forecast, Israel’s real GDP will reach 4.2% in 2006 and 2007. This is an increase on the IMF’s previous estimate of 3.9% but lower than Israel’s 5.2% growth in 2005.
Israel’s economic prospects now look brighter than those of other developed countries. The average growth rate forecast for all the developed economies in North America, Europe and Asia is 3% in 2006 and 2.8% in 2007. The average growth forecast for the members of the euro block is 2% in 2006 and 1.9% in 2007, while the US will have 3.4% growth in 2006 and 3.3% growth in 2007.
The IMF expects only two countries to have higher growth rates than Israel: Ireland, which will grow 5% in 2006 and 5.2% in 2007 and Iceland, which will grow 5.5% in 2006 but by only 2.3% in 2007. France will have economic growth of 2% in 2006 and 2.1% in 2007 while Germany will grow 1.3% in 2006 and 1% in 2007.
The IMF expects inflation in Israel to reach 2.4% in 2006 and 2% in 2007, slightly less than the forecast published by the Bank of Israel. In September 2005, Governor of the Bank of Israel Prof. Stanley Fischer said that the bank’s expectations that inflation would exceed the 3% ceiling, required the increasing of interest rates to 4.75% by February 2006.
The IMF expects unemployment in Israel to continue to fall, reaching 8.5% in 2006 and 8.2% in 2007. Unemployment fell from 10.3% in 2004 to 9% in 2005.
While unemployment in Israel was lower than the forecast for France (9.6% in 2006 and 9.1% in 2007), or Greece (9.5% in 2006 and 2007) it was still much higher than the average for all the developed countries (5.8% in 2006 and 2007) or the US (4.9% in 2006 and 5.1% in 2007).
The IMF once again calls on Israel to reduce its debt-to-GDP ratio, stating “The government will need to set out specific expenditure guidelines to meet the 3% of GDP ceiling,” and take concrete measures to reduce public debt, which currently stands at 100% of GDP.
The recommendation follows a previous advisory note published in the IMF Executive Board 2005 Article IV Consultation with Israel, published in March, which was even more blunt, stating that public debt in Israel was still high, relative to the level in the West and OECD countries and there was therefore a need to take redouble efforts to lower it further.
The new forecast states, “GDP in Israel grew by a rate of 5.2% in 2005. This was fuelled by strong private demand and revenue from tourism. The strong internal demand and salary levels led the Bank of Israel to increase interest rates in October and November. Looking forward, while political and security risks remain, the prospects for growth are nevertheless positive.”
Published by Globes [online], Israel business news - www.globes.co.il - on April 20, 2006
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