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OECD economists forecast mere 3.1% growth rate in Israel in 2012 Photo: Index Open
OECD economists forecast mere 3.1% growth rate in Israel in 2012 Photo: Index Open

OECD cuts Israel's growth forecast

Global economic organization says if government fails to raise taxes, it won’t meet deficit target

Gad Lior
Published: 11.30.12, 14:39 / Israel Business

The Organization for Economic Cooperation and Development (OECD) warned this week that if the new government established in Israel after the elections fails to raise taxes, the deficit in the State coffers will grow beyond its target.


According to the OECD report, doubling the future deficit by the government would not suffice either, and there is high probability that in light of the government's expenses and the drop in its income tax – it will fail to meet the new deficit as well.


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To begin with, the budget deficit was meant to be only 1.5% of the gross domestic product in 2013, which is about NIS 15 billion ($4 billion). But the deficit was increased by the government to 3% of the GDP, which is about NIS 30 billion ($8 billion).


Now, the organization believes, this target may not be met as well if the new government fails to raise taxes and cut its budget.


The government increased its deficit target for 2014 from 1% to 2.75%, but will fail to meet this target as well if it doesn’t raise taxes, the report said.


The report states that Israel's economic growth has stopped but is expected to increase in the future, mainly due to the recovery in external demands. OECD economists forecast a mere 3.1% growth rate in Israel in 2012, and a lower 2.9% growth rate in 2013.


Israel's economic growth is expected to increase significantly only in 2014, nearing 4% again. It should be noted that the Israeli growth rate reached 7.8% in the last quarter of 2010 and 4.8% last year.


The organization's economists note that the future increase in Israel's growth already incorporates a 0.2% growth from revenues of the Tamar offshore gas field.


The organization also states that there are several risks threatening the Israeli economy: The crisis in the global economy, the geopolitical tensions in the Middle East which remain high, and the budget uncertainty in Israel.


According to the report, the delay in the preparation of a new state budget and the early elections add to the risks.


Addressing the global economy, the report states that the United States will grow by 2.2% this year and by only 2% next year, but will return to a 3% growth rate in 2014 – less than Israel.


The unemployment in the US will drop from 8.1% today to 7.4% at the end of 2014 – still higher than the Israeli unemployment rate, which currently stands at 7%. According to the OECD forecast, the 0-0.25% interest rate is expected to continue till the end of 2014.


Europe's growth rate in the coming year is expected to be close to zero and reach 1.3% in 2014. The unemployment rate in Europe will reach 12% next year. The interest rate in Europe is expected to drop to around 0% in 2014, as in the US and Japan (0.1%) today.



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