Israeli prime minister Benjamin Netanyahu’s success among center-right political parties, which saw him recently elected for a fourth term, may have provided a stable political platform, but international pressure and recent social unrest could see the country change economic direction.
The engine of Israel’s economy is the high-tech industry, which is supported by solid economic fundamentals. “Macroeconomic policies have been sound in Israel in recent years, and we can expect continuity of fiscal discipline and strong central bank credibility after the elections,” confirms Leo Leiderman, the chief economist of Hapoalim Bank, a leading Israeli bank. However, discussions on new economic policies in the energy sector, particularly in the natural gas production and distribution industry, have stalled.
Important strategic and economic agreements to sell natural gas from Israel’s new gas discoveries to its Arab neighbors were canceled or suspended as a result of the recent political standstill during the election campaign. The turnabout was also triggered by a controversial decision by Israel’s Antitrust Authority to break up Noble Energy and Delek Group’s control of the Leviathan gas field. In light of internal and external pressure from private companies and senior officials, Netanyahu ordered a review of the Authority’s decision.
Recent social unrest caused by high housing and food prices is also likely to force Israel’s prime minister to open up many sectors—housing, food and banking to competition. The Israeli economy is driven by holding companies, often dominated by a few families with a controlling market share and limited competition. “The new government is expected to speed up the freeing of additional areas for private construction and to help increase the supply of housing units in areas of high demand,” says Leiderman. “Other reforms should lead to increased competition in various sectors, with the hope of lowering the cost of living.”
Increasing competition by reducing bureaucracy and opening up local markets to imports calls for better cooperation among Netanyahu, his ministers and various groups in the civil sector, including labor unions and nongovernmental organizations. This could prove challenging though, given the government’s mixed track record in implementing long-term economic and social initiatives.