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. Nonetheless, 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. Economic growth will be affected by exports weakness in the short term, but will gradually pick up amid a strong private consumption outlook and an increase in government spending.
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.
|e/f = BMI estimate/forecast. Source: National sources, BMI|
|Real GDP growth, % y-o-y||2.6||2.5||2.7||3.4|
|Nominal GDP, USDbn||303.8||296.2||306.0||327.9|
|Consumer price inflation, % y-o-y, eop||-0.2||-1.0||1.1||2.5|
|Exchange rate ILS/USD, eop||3.90||3.89||3.85||3.75|
|Budget balance, % of GDP||-2.8||-2.1||-3.1||-2.8|
|Current account balance, % of GDP||3.0||4.4||5.4||5.4|
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