Israel and the OECD: Good, bad, and the ugly

It is just over a year since Israel became the 33rd member of the OECD.

Some of the comparative stats look very impressive. The country may spend less on health than others, but Israel is fifth on the ladder of life expectancy.  As for the price of food, Israelis pay less than citizens in other countries, even if this will come as a surprise to many householders in the Holy Land.

This week, the OECD published its latest report on the Israeli economy. Unemployment should hold steady along with price inflation. There should still be some real growth per capita. That said, GDP increase for 2012 is forecast at 2.9%, barely 60% of the prediction for this year.

The problem is the ugly unknown threat of the European downturn. Nobody can say for sure just how deep it will be.

The Bank of Israel has already chirped in and cut the rate of interest by 0.25% to 2.75%. While stressing the Euro factor, the bank commented that:

Economic indicators that became available this month support the assessment that in the third quarter and in October the slowdown in the rate of growth of economic activity continued. Most of the slowdown in the domestic economy resulted from the easing in global demand and its effect on exports, and also to some extent from the slackening of domestic demand.

As I commented yesterday, the Israeli economy is still reacting from a position of strength. That said, changes will need to be made and soon in order to maintain the country’s competitiveness in key sectors. One simple example is the central control of the agricultural sector, which keeps the price of local produce artificially high. Another problem is the bureaucracy surrounding small companies wishing to receive support. The tax system is crying out for simpification. 

The OECD report stated that Israel is “expected to avoid recession” in 2012. That is a warming remark as we head into winter, but policy makers cannot afford to be complacent. It is time for new structural changes in order to protect the impressive economic achievements of the past.

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