After a pronounced but temporary weakening in 2014, growth is projected to rebound to about 3% in 2015 and 3½ per cent in 2016, which should avert any rise in unemployment. The rebound in domestic demand that is expected to follow the end of the Gaza conflict, the projected strengthening of the external environment and the recent weakening of the exchange rate will sustain activity. The economy should also be supported by ever-lower interest rates and a pause in fiscal consolidation in 2015.
Falling prices call for continued expansionary monetary policy to facilitate the recovery. Even so, there needs to be continued vigilance as to the risks of overheating in the real estate market that this policy can induce. The authorities’ commitment to resume fiscal consolidation in 2016 and to pursue the goal of reducing government debt is welcome. But civilian budget expenditures, notably already relatively low education and social spending, should be protected from cuts as much as possible.
