The entry of right-wing party Yisrael Beitenu in the coalition will bring greater stability to the government led by Prime Minister Benjamin Netanyahu, increasing its chances to complete its term. Combined with recent settlements-related announcements, including the building of an additional 285 Israeli homes in the West Bank announced in August 2016, it will fuel Palestinian grievances and increases the risks of a renewed intensification of violence in the West Bank and Jerusalem, and of a direct confrontation with Hamas and Gaza.
Strong private consumption and a sharp recovery in fixed investment following a two-year slump will underpin growth acceleration over the coming quarters. Nonetheless, the exports sector will recover only very gradually from 2017 onwards, being impacted by a strong shekel and a weak macroeconomic outlook in the EU and the US, Israel's main trade partners.
A faster-than-expected appreciation of the shekel over the coming months, amid the Bank of Israel's inability to significantly alter its appreciatory trajectory, could further delay the recovery of the exports sector.
The ultra-Orthodox push to roll back on reforms implemented in the previous years could lead to the long-term fiscal outlook being significantly weakened in addition to lowering productivity growth in the long-run.
The wave of violence between Israelis and Palestinians, which has waned in recent months, could regain traction and lead to a conflict between Israel and Hamas, or to a full-scale armed insurrection similar to the first and second intifadas.
|e/f = BMI estimate/forecast. Source: National sources, BMI|
|Real GDP growth, % y-o-y||3.2||2.5||2.6||3.2|
|Nominal GDP, USDbn||303.8||296.2||306.9||328.8|
|Consumer price inflation, % y-o-y, eop||-0.2||-1.0||1.1||2.5|
|Exchange rate ILS/USD, eop||3.90||3.89||3.82||3.73|
|Budget balance, % of GDP||-2.8||-2.1||-3.0||-2.9|
|Current account balance, % of GDP||4.1||4.9||4.1||3.4|
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