Central Bank of Israel Governor Dr. Karnit Flug presented the bank’s 2016 Annual Report to Prime Minister Benjamin Netanyahu and President Reuven Rivlin Wednesday, saying Israel’s gross domestic product grew by four percent last year while maintaining near-full employment and an increase in wages.
The first main point in the report is the low inflation despite the increase in demand, consistent with low inflation worldwide and an appreciation of the shekel. It is reflected in lower-priced imported goods and a change in consumption patterns and the transition to imports via the Internet, which led to increased competition among consumer products and reduced prices.
Additionally, the report shows that the debt to GDP ratio continued to decline, to 62 percent, due to the growth and the level of the deficit, and also due to transitory factors including the rapid increase of the GDP deflator alongside declining consumer prices, and an exceptional increase in tax revenues from vehicle imports and real estate transactions.
The report further notes that government expenditure on investment in human capital (expenditure per student) and physical capital, despite increasing in the past two years, remains low by international comparison, and the low level of basic skills and of infrastructure impairs potential growth in the economy.
The report also stressed a long-term view of economic policy and called for “a significant and efficient investment in improving education and infrastructure (in order to) make it possible to increase labor productivity and the economy’s growth potential, thereby contributing to an increase in the standard of living of all Israelis.
“Such investment is the key to sustainable inclusive growth. The good state of the economy is precisely the opportunity to adopt such a policy,” the report said.
President Rivlin offered praise for Flug’s accomplishments as chief steward at the Bank, and added that there are also several weak points in the Israeli economy that must be addressed.
“The state of Israel’s economy is, without a doubt, good. The government finished 2016 with a deficit significantly lower than the deficit ceiling set out in the budget. The bottom line of the Bank of Israel’s Annual Report is that the Israeli economy is showing signs of strength relative to other economies, and came through the global crisis well.
“At the same time, not everything is roses. There are a number of weak points in the Israeli economy, and we must therefore monitor economic processes closely as we move forward, improve and lead,” Rivlin said.
Prime Minister Netanyahu added “Israel’s economy is well-managed and flourishing. This growth is the basis for the rest of the things we want to accomplish. First of all, reducing inequality, integrating people into the workforce is a central cause, and rising salaries. These are all good news.
“But we must take care to ensure that this growth continues and that (we retain the ability to dedicate) all the resources we want to infrastructure, education… growth is our main goal, and that includes opening up to new markets around the world.
"At the end of the day it will benefit Israeli citizens—by lowering the cost of living, in the number of jobs available, we are have created hundreds of thousands of jobs over the last several years and have successfully avoided the crippling plague of mass unemployment that we have seen, especially amongst the young and old populations in Europe.
“So from this perspective, Israel’s economy is strong, and we will work to ensure that it remains strong,” Netanyahu said.