Equip your business with the tools and talent to remain competitive in Israel as market regulations and trade barriers are eased. Prepare inventories for further normalization of demand in 2022, assuming low risk of a renewed lockdown. Amid moderately elevated cost pressures, review pricing strategies to ensure market share can be defended. Target customers in manufacturing, construction, retail, and ICT, as they have been outperforming in terms of revenue growth even before 2021. Expect B2G demand to grow, especially for healthcare, infrastructure, R&D, and energy; however, consider how you can position your products as efficient and long-term value drivers for the government to generate investments.
Overview
Israeli lawmakers voted 61–59 to approve the 2021 budget of ILS 609 billion a few days before its November 14 deadline, making it the first budget Israel has passed since 2018. Afterward, the government passed the budget for 2022 of ILS 572 billion. Israel also passed many economic reforms, which reduce import barriers and promote private sector participation in key sectors, such as transportation, food and agriculture. Meanwhile, Israel’s economy continued to grow in Q3 2021, registering 5.9% YOY.
Our View
The passing of the budget removes one of the key sources of short-term tension, reducing the likelihood of a government collapse in 2022. Rifts within the ideologically diverse eight-party coalition present ongoing but minor risks to political stability. The 6% YOY fall in total government spending will be driven by a 31% cut to emergency spending related to COVID-19, including the reversal of a looser unemployment benefits policy. Nevertheless, the budget focuses on raising non-COVID-related spending in most sectors, including healthcare, housing, education, telecom, and logistics, while also preserving salary growth, which accounts for ~25% of the total budget. Hence, Israel’s economy is poised for strong growth in 2022, reaching 3.8% YOY. The continuation of temporary COVID-19 restrictions targeting the unvaccinated will not derail Israel’s economic outlook due to the high vaccination rate, and ongoing initiatives to raise vaccine uptake among cultural minorities and provide booster shots to most adults. Despite elevated cost pressures, which include high commodity prices and shipping disruptions, the anticipated appreciation of the shekel along with rising competition should prevent significant price hikes in 2022; however, we expect inflation will average 1.7–2% YOY in 2022, following a 1.3% growth in 2021.
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