In a negative and full context, a new report issued by the Organization for Economic Cooperation and Development (OECD) and published by the Jerusalem Post newspaper on Wednesday, stated that economic activity in Israel is still weak despite the partial recovery following the continuous Israeli war on the Gaza Strip.
The report indicated that this weakness has continued since 2024, with investments remaining at low levels with 15% decline from what they were before the outbreak of the war.
This decrease is due to the lack of labor, especially in the construction sector, as a result of the suspension of work permits for the Palestinians, in addition to the decline in exports, according to the report.
The organization expected the cooperation to recover the Israeli economy during the next two years, provided that geopolitical tension is decreased, confirming the need of Tel Aviv to a package of structural reforms to support public finances and maintain growth in the long term.
The Israeli economy, which was affected by the war on Gaza and the war in Lebanon, grew only 0.9% in 2024.
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Market fragility and incapacitance
The report highlighted that the exacerbation of conflicts on the various fronts “may lead to an additional deterioration in public accounts, and directly affect economic activity.” He also pointed out that the risk allowance for the sovereign bonds of Israel increased by 50 basis points, compared to what it was before the seventh of October 2023.
The financial scale in Israel turned from a large deficit, which reflects the increasing pressure on the public economy.
With regard to internal policies, the report called for “structural reforms” in the fields of education and the labor market to stimulate growth and increase the rate of employment, especially among young people from the Arab and Jewish societies (Haraidim), who “receive an incomplete or low -quality education in basic materials, which limits their later ability to engage in the labor market and negatively affects their productivity and wages.”
In its report, the organization suggested that Israel resort to financial tools “with a less harmful effect on growth”, such as imposing taxes on sugary drinks, monochrome plastic, canceling the value -added tax exemptions, and raising carbon taxes.
The organization said that any financial reform must take into account the sharp rise in military spending, and the organization expected:
- Israel’s economy growth is 3.4% during the current year and 5.5% during the year 2026, which are less than the expectations of the Bank of Israel, which suggested that growth of 4% this year.
- Inflation reaches 3.7% this year, exceeding the target, which ranges between 1% and 3%, and 2.9% in 2026.
