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Israel economy forecast to slow sharply in 2023 amid rate hikes

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A survey by the Israel Innovation Authority found 80 percent of startups established so far this year were opened outside the country

Israel’s economy grew 6.5 percent in 2022 – slower than 2021’s 8.6 percent expansion but still much stronger than most Western countries – the Central Bureau of Statistics said, citing solid growth in consumer spending, exports and investment.

The full-year reading exceeded the 6.3 percent projected by the Bank of Israel and the finance ministry following a faster-than-expected annualised 5.8 percent expansion in the fourth quarter, according to an initial estimate.

A Reuters poll of economists had forecast growth of 2.5 percent in the final three months of last year.

In 2022, the average growth among OECD nations was 2.8 percent.

On a per capita basis, Israel’s economy – which produced $500 billion last year – grew 4.4 percent versus an OECD average of 2.6 percent.

Helped by a surge in immigration from former Soviet states and a decline in mortality, Israel’s population rose 2.2 percent last year and now stands at 9.66 million.

The bureau noted that should this rapid increase continue, Israel’s population will reach 10 million in mid-2024. Should it rise at a more normal rate of 1.8 percent, the 10 million mark will be hit by the end of next year, it said.

Economic growth in Israel is expected to slow sharply in 2023 to a rate of near three percent, with central bank rate hikes expected to dampen spending.

The strong growth data comes after the bureau on Wednesday reported that Israel’s inflation rate rose to 5.4 percent in January – its highest rate since October 2008 – from 5.3 percent in December.

The Bank of Israel has steadily raised its benchmark interest rate to 3.75 percent from 0.1 percent last April in a bid to rein in inflation. Policymakers are expected to raise the rate to at least four percent at its next rates decision on Monday.

Despite rising prices and a very high cost of living, economic growth in 2022 was led by a 7.5 percent gain in consumer spending – more than half of economic activity – while exports grew 7.9 percent and investment in fixed assets rose 9.3 percent.

More than half of Israel’s exports come from a booming high tech sector, which accounts for 11 percent of the country’s workforce and 15 percent of total economic activity.