Assessment and recommendations

Israel’s output growth has been impressive, considering global economic weakness, and the output gap is close to zero in contrast to much of the OECD area. The unemployment rate is at a 30-year low, and labour force participation has been rising steadily. Furthermore, new natural gas fields have provided an additional boost to GDP in recent quarters. Substantial public spending cuts and revenue-raising measures legislated in the latest government budget are set to bring fiscal balances back on target for this year and next. However, staying on track with consolidation beyond this will remain challenging. In the monetary domain foreign-currency purchases have resumed, and macro-prudential measures have been needed to contain potential financial risks associated with the surging housing market.

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