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IMF says Israeli economy robust but warns of high budget deficit

Xinhua, September 16, 2015 Adjust font size:

The International Monetary Fund said Wednesday the Israeli economy is growing robustly but urged decision makers to tackle a stubbornly high budget deficit which poses a risk to market's resilience.

The Israeli economy is "doing well and near-term growth prospects are favorable," a panel with the International Monetary Fund (IMF) said in a report on the Israeli economy, obtained by Xinhua.

The economy is forecasted to expand by about 2.5 percent in 2015, lower than Prime Minister Benjamin Netanyahu's 4 percent target but higher than most developed countries, the panel noted.

The panel said the market can keep a positive growth also in the medium term, with 3-3.3 percent growth projected for the years of 2016-2018.

Employment creation has been "remarkable," the panel said, noting rates have been growing at an annual rate of 3.5 annually, while unemployment fell to a multi-decade low.

However, the panel advised the Israeli government to beware of a persistently high budget deficit which leaves the economy venerable to shocks.

Israel met its original deficit target of 2.8 percent of gross domestic product (GDP) in 2014. However, in August the government decided to raise the deficit target for 2015 and 2016 from the original 2.5 and 2 percent to 2.9 percent of GDP for both years.

The panel said Israel needs to bring debt "firmly" on a downward path, cautioning that "current levels leave few buffers to deal with shocks," such as renewed military conflicts with its neighbors or a sharp recession.

The panel also warned that housing prices in the country ran so high - increasing by about 4 percent year-on-year - that it became a risk for the stability of the financial sector.

"The financial system appears sound, but risks emanating from exposure to real estate and construction should be carefully monitored," the IMF said.

Attributing the increasing mainly to supply constrains, the IMF said that "boosting supply of housing is critical to contain housing price increases, and concerted efforts among relevant ministries and local governments are needed." Endit