Political risks have increased sharply, with more than one hundred Israeli and Palestinian deaths recorded between October 2015 and January 2016, and with no sign of appeasement in tensions. Prime Minister Benjamin Netanyahu controls a coalition with a majority of just one seat in the Knesset and it is likely that it will not be able to see out its four year term. Economic growth will accelerate over the coming quarters, as government spending increases, and as exports and private consumption pick up following one-off slumps.
A delay in the Fed hiking its policy rate would lead to the shekel appreciating sooner than we anticipate. The export sector - which accounts for 35% of GDP - would suffer from a strengthening currency.
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 current wave of violence between Israelis and Palestinians could escalate to a conflict between Israel and Hamas, or to a full-scale armed insurrection similar to the first and second intifadas.
|Real GDP growth, % y-o-y||2.8||2.1||3.0||3.5|
|Nominal GDP, USDbn||303.8||284.1||294.5||316.5|
|Consumer price inflation, % y-o-y, eop||-0.2||-1.0||1.5||2.5|
|Exchange rate ILS/USD, eop||3.90||3.89||3.85||3.75|
|Budget balance, % of GDP||-2.9||-2.5||-3.2||-3.0|
|Current account balance, % of GDP||3.0||5.5||5.8||5.7|
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