The Organization for Economic Cooperation and Development (OECD) on Wednesday lowered its growth forecasts for Israel for 2024 and 2025.
According to the organization’s semi-annual economic outlook report, Israel’s gross domestic product is projected to grow by only 0.6 percent in the current year, down from OECD’s previous forecast of 1.9 percent in May.
The OECD also revised down Israel’s growth forecast for next year to 2.4 percent from the earlier forecast of 4.6 percent. In addition, economic growth is projected to pick up to 4.6 percent in 2026.
The report explained that the evolving conflicts in the region would further suppress economic activity and exacerbate Israel’s already substantial fiscal deficit, saying a swift de-escalation could unleash pent-up demand.
It emphasized the need for increased state revenues to fund higher defense spending while prioritizing spending on critical areas such as research, education, and public investment.
Noting labor shortages in Israel, which continue to constrain growth and investments, it said the employment of more foreign workers and the reopening of work permits for Palestinians could alleviate these shortages.
The report suggests fiscal and structural reforms to boost growth. “The Israeli government should prioritize permanent fiscal reforms, such as removing VAT exemptions and reducing subsidies that discourage workforce participation, rather than measures likely to be reversed, such as freezing tax brackets or allowance levels,” the report stated. ■