This Survey is published under the responsibility of the Economic and Development Review Committee of the OECD, which is charged with the examination of the economic situation of member countries.

The economy has rebounded strongly from the COVID-19 pandemic and has proven resilient to the repercussions of Russia’s war of aggression against Ukraine. Timely policy support, a fast vaccination campaign, the strength of the high-tech sector and self-sufficiency in natural gas have mitigated both shocks. Growth is set to moderate but remain robust. Risks are elevated.

Israel’s economy recovered swiftly from the pandemic and has proven resilient to the repercussions of Russia’s war of aggression against Ukraine. Inflation has risen above the central bank’s target range amid strong demand and a tight labour market. In response, monetary policy has been tightened. Fiscal policy has consolidated and should remain neutral to not add to inflationary pressures. In light of demographicchallenges and much-needed investment to boost productivity and narrow socio-economic gaps, ensuring fiscal sustainability will require a medium-term fiscal strategy and an enhanced fiscal framework. To maintain the good overall health outcomes, emerging doctor shortages need to be addressed and the interaction between the public and private health care sector reformed. Reducing digital gaps across households and firms, by improving digital infrastructure, skills, competition and reducing financing constraints, can boost productivity growth and narrow the productivity divide between the high-tech sector and the rest of the economy. Fully harnessing Israel’s solar energy potential can help accelerate the green transition.

High employment growth has sustained Israel’s high GDP growth in recent decades, but demographic change and labour market duality put future growth at risk. Policy action is required to stimulate employment and raise labour productivity, especially among population groups with weaker labour market outcomes. A particular concern is closing employment gaps of Haredim and Arab‑Israelis and ensuring gender equality in the workplace, which would simultaneously improve opportunities for all Israelis and the aggregate labour productivity of the economy. This will require setting appropriate work incentives and providing better support for working parents; improving skills at all stages of the learning cycle; as well as increasing mobility and improving reallocation towards high productivity jobs and firms, in particular in the high-tech sector.