The Organization for Economic Cooperation and Development raised its 2012 economic growth estimate for Israel while cutting its projection for next year.
The OECD increased its forecast to 3.2 percent, in line with the Finance Ministry’s prediction, from its November estimate of 2.9 percent, according to a report released today. The group reduced its projection for 2013 to 3.6 percent from 4.7 percent. The economy expanded 4.8 percent in 2011.
“Economic activity has been slowing in line with export market developments but is expected to pick up on the back of stronger external demand,” the OECD said in the report. “Trade and private consumption, which were soft in the fourth quarter of 2011, seem to be recovering.”
Israel’s economy grew a faster-than-expected 3 percent in the first quarter, led by a rebound in exports. The economy is expected to expand 3.1 percent this year, the Bank of Israel, led by Governor Stanley Fischer, said on March 26, raising its forecast from December’s 2.8 percent. The bank’s research department cited “positive indicators” for the economy including imports, services exports and business expectations.
The Paris-based organization warned against a “substantial” overshooting of deficit targets, and recommended raising value added tax to help pay for “positive structural reforms.” The government should resist pressure for further concessions on the gasoline excise duty and should keep personal income tax cuts “firmly off the policy agenda,” it said.
Underlying inflationary pressure is expected to rise “slightly,” encouraging a resumption of policy-rate increases by the Bank of Israel. The organization is forecasting inflation of 2.2 percent in 2012 and 2.5 percent next year. The government’s annual target is 1 percent to 3 percent.
The central bank held the benchmark interest rate at 2.5 percent for a third month on April 23. The monetary policy committee is expected to leave it unchanged in its next decision on May 28, according to all 15 economists surveyed by Bloomberg.
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