OECD: Israel debt-to-GDP ratio will improve more rapidly than previous forecasts

The Omicron variant could jeopardize the global growth trend and lead to a continuation and worsening of inflation, the OECD report published today (Wednesday) states. Total government and domestic product. According to OECD forecasts, the debt-to-GDP ratio will improve more rapidly relative to previous forecasts by local bodies.
The organization expects that the ratio of public debt to GDP will decrease. According to the OECD, following the jump in debt raising, the ratio reached 71.5% in 2020, and it remained the same in 2021. However, as early as 2022, the debt-to-GDP ratio will begin to shrink, reaching 70.8% - and a year later it will decline further, to 70.5%.
The decline in 2022 will be achieved mainly due to a sharp growth in GDP of 6.3% in 2021. A year later, growth will also be high, reaching 4.9%, and a year later the organization expects 4% growth. At the same time, according to the Ministry of Finance's forecasts, government expenditure will shrink and the deficit in government activity in 2022 will fall to 3.9% relative to GDP.
This OECD forecast is far from the Bank of Israel's Research Department's forecast for October. The Bank of Israel predicted that in 2022 the debt-to-GDP ratio would increase to 73.5%, while in 2022 it would shrink slightly to 73% - a much higher rate compared to the OECD forecast.
The OECD notes positively the vaccination campaign in Israel, the recovery in the labor market, the high demand and especially the high-tech exports. All of these will affect strong growth in Israel in the coming years. The OECD also notes favorably the transfer of the state budget to the Knesset in August and the Arrangements Law, which includes a series of reforms, such as lowering import barriers, reducing regulation and creating rapid licensing routes for businesses.
However, the OECD focuses mainly on the actual implementation of these programs: the organization says that only their effective implementation according to the set schedule will lead to a process of consistent recovery. Apart from the deterioration in the health situation, another danger lurking for the Israeli economy is higher and more persistent inflation. Inflation in 2022 will reach 2.4%, mainly against the background of rising energy, food and housing prices, and also in 2022 it will be beyond the mid-range of the Bank of Israel - 2.1%.
Regarding the labor market, the organization notes its rapid recovery rate, but points out that the unemployment rate is still high relative to the period before the crisis. The organization says that vocational training programs for the unemployed should be formulated, and at the same time that government support should be phased out, in light of the uncertainty in the economy.
The organization notes that Israel needs to increase investment in early childhood education, in order to improve the skills of future workers and produce broad-based growth in all sections of the population. Regarding the intention to impose a tax on carbon, the OECD notes that this is a step in the right direction in terms of meeting the targets of greenhouse gas emissions, but the move should be accompanied by the removal of barriers to renewable energy projects and improved energy efficiency.
The OECD report further states that the Omicron variant may jeopardize the global growth trend and lead to a continuation and worsening of inflation.
The organization predicts that inflation will peak in early 2022, and that by 2023 it will stabilize in the countries included in it at 3%. But they say that if the slowdown in the supply chain continues at the same time as unimpressive growth, inflation could accelerate and affect the mood of the public - and central banks should see such a scenario as "time for action".
The OECD is trying to convey cautious optimism in the face of the recovery from the plague, but is reluctant to do so with several concerns. The organization has updated its global growth forecast for the current year, from 5.7% to 5.6%, and it forecasts a moderate decline to 4.5% in 2022 and 3.2% in 2023. The report warns of continued uneven growth and significant gaps between countries, depending on the availability of vaccines, the state of the employment market and the government support that citizens receive in them.
In China, the forecast was revised downwards, to a growth of 8.1% in 2021, compared with a previous forecast of growth of 8.5%. The forecast for 2022 has also been revised downwards, from 5.8% to 5.1%. In the euro area, the growth forecast has changed less, to 5.2% this year compared to a previous forecast of 5.3%, and to 4.3% growth in 2022 (4.6% in the previous forecast).
For the US, the OECD's growth forecast has been updated at a higher rate, to 5.6% this year (compared to 6% in the previous estimate) and 3.7% in 2022 (3.9% in the previous estimate).

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Johannesburg Airport, 27 November
Johannesburg Airport, following the outbreak of the new variant. Omicron poses a difficult challenge for vaccinesPhoto: SUMAYA HISHAM / Reuters
Even in the more positive scenarios outlined by the organization, local eruptions of the corona could restrict movement, hurt employment markets, accelerate inflation and hurt production. In the most negative scenario, new strains of the virus, which may develop in countries with low immunization rates, are likely to wreak havoc. The omicron variant may fit this definition.
The organization also warns of future fiscal planning, saying that governments have not learned lessons from the peak of the plague. They warn of a shortage of medium-term plans, which will include investments in sectors that promote future growth, mainly education and infrastructure.
Another serious concern noted in the organization is the climate crisis. "There is too much talk and too little action in this arena," the OECD report said.
In the field of education, too, governments are being warned that not enough has been done to address the damage caused by the prolonged closures. According to the organization, the students missed a huge amount of school days and study materials, in a way that could materially affect their future livelihoods.