Experts: Israel’s Economy Will Expand At Lower Rate Than Predicted

Economic experts are projecting that Israel’s economy will expand over the next two years at a rate that is less than was previously estimated.

According to a Bloomberg News survey of 18 economists that was conducted from Nov. 21 through Nov. 26, Israel’s gross domestic product will rise 2.3 percent this year, 3 percent next year and 3.3 percent in 2016, a reflection of downward revisions across all annual periods. In August, economists had forecast growth of 2.9 percent this year, 3.3 percent next year and 3.8 percent in 2016.

As noted by Bloomberg.com, the 2014 revision has been made after Israel’s 50-day military conflict with Hamas in Gaza, during which thousands of rockets fired from the Palestinian territory suppressed tourism and hampered production. The Israeli Finance Ministry has estimated the war brought on a 0.6 percent decrease in annual growth.

The Jewish state’s economy contracted for the first time in five years in the third quarter, decreasing by an annualized 0.4 percent, after expanding 2.2 percent in the three months through June.

“Part of the effect of ‘Protective Edge’ on the economy is supposed to be temporary, but the damage to tourism or cancellation of transactions led to a loss of production,” Alex Zabezhinsky, chief economist at Tel Aviv-based Meitav Dash Investment House Ltd. reported, referring to the military conflict.

Finance Minister Yair Lapid’s proposal to eliminate the 18 percent value-added tax on new home purchases for qualifying buyers also caused uncertainty in the housing market and damaged investment in this sector, Zabezhinsky claimed. The draft law is presently the subject of debate in the Knesset.

“If not for these factors, the economy would have demonstrated the same rate of growth or even faster growth than in 2013, excluding natural gas,” Zabezhinsky explained.

Economists additionally lowered their inflation expectations for all three annual periods. Inflation forecasts for 2014 have been cut in half since August, with consumer prices expected to rise 0.5 percent.

In 2015, inflation in Israel is expected to accelerate to 1 percent, and to 1.5 percent in 2016, compared with a previous forecast of 1.7 percent and 2.1 percent, respectively.