Israel Economic Outlook
GDP growth sped up to 5.8% in quarter-on-quarter annualized terms in Q4, as booming private consumption more than outweighed slower expansions in government spending and fixed investment, and a contraction in exports. However, the reading was flattered by a temporary jump in car purchases, which have historically introduced significant volatility into Israel’s national accounts data. Turning to Q1, momentum is likely easing amid tighter monetary policy, with the Central Bank’s State of the Economy Index flatlining in January, below the prior quarter’s 0.1% average growth. The new government’s proposed reform to weaken the judicial system—which has recently spurred widespread street protests, caused a spike in borrowing costs and dented the shekel—could be further dampening activity. Parliamentary approval of the reform would likely deliver a lasting knock to business sentiment and investment.
Israel Inflation
Inflation rose to 5.4% in January, following December’s 5.3% and moving further above the Central Bank’s 1.0–3.0% target range. January’s figure represented the highest inflation rate since October 2008, and was above market expectations. Inflation is projected to soften as this year progresses but to remain above the upper bound of the target range until Q4.