OECD said on Wednesday 24 June 29009 that Israel's economy will shrink 2% in 2009 as the global financial crises undermines demand for exports.
Growth will recover in 2010, with the economy expanding 0.2%, the Paris-based OECD said in a report.
Exports are expected to contract by 25% this year and expand by 2.6% next year, the OECD said.
"Recession is now under way, due largely to high exposure to international trade, but it is also being tempered by the relatively mild difficulties in domestic markets and the absence of a house-price bubble," the report said. "Growth will only turn modestly positive at the end of this year".
The new government, headed by Prime Minister Netanyahu has made a commitment to limit cyclical increases in the budget deficit. The spending rule should be maintained for immediate budgeting purposes (even though it could later be improved) but ambitions for further income tax cuts should be curtailed the OECD said. As conditions normaliise, monetary policymakers should re-establish business-as-usual inflation targeting by terminating quantitative easing and intervention in the foreign-exchange market.
