In its Economic Outlook 2023 report released Wednesday, the Organization for Economic Cooperation and Development (OECD) indicated that Israel’s economic expansion will slow this year and the next due to ongoing political tensions and global economic uncertainty. The OECD downgraded Israel’s GDP forecast to 2.9% in 2023, down from its previous 3% projection, and to 3.3% in 2024, a reduction from 3.4%.
Domestic political tensions over the government’s planned judicial overhaul and heightened security incidents could negatively impact business sentiment and investment, the OECD warned. Additionally, a significant drop in capital raised by tech companies, down 70% to $1.7 billion in Q1 2023 from $5.8 billion in Q1 2022, has also raised concerns about Israel’s economic stability.
Despite inflation hovering around 5%, the Bank of Israel has steadily raised its benchmark interest rate from 0.1% last April to 4.75% this year, aiming to bring inflation back within the government’s target range. The OECD cautioned Israel’s government to maintain fiscal prudence to avoid exacerbating inflationary pressures.
The OECD also urged the Israeli government to introduce labor market and educational reforms to address demographic challenges and mitigate labor market disparities.