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Deputy Governor, Dr. Karnit Flug delivered a lecture at the economic symposium of the Tel Aviv University Board of Governors meeting, and reviewed the trends and challenges faced by the Israeli economy. Dr. Flug noted that Israel's macroeconomic performance has been relatively good, and it has shown noteworthy resilience in the challenging global environment since the global financial crisis.
However, Israel faces substantial challenges in terms of its growth prospects and social developments in the medium and long term. These challenges are related to demographic trends, such as an increase in the share of the elderly, and compositional trends—an increase in the share of ultra-Orthodox and Arab populations—changes that are expected to have far-reaching effects on labor force participation, labor productivity and social gaps. These trends, combined with the already slow growth of productivity, the not so friendly business environment (as reflected, for instance, in the World Bank’s Doing Business indices), the mediocre results of our students on standardized tests, and the challenging fiscal position, pose major policy challenges to the political system, which naturally tends to focus on relatively short-term horizons.
These trends and challenges point to the policy priorities that should be followed as part of a strategic plan for Israel that aims at promoting inclusive growth. It is important to adopt measures enhancing the integration of the Arab and ultra-Orthodox populations in the labor market; there will be no choice but to raise the retirement age in accordance with rising life expectancy; policy measures are required to improve the level of education relevant to the job market for all parts of the population; labor productivity must be improved by investing in infrastructure, enhancing competition, improving the business environment, providing incentives for R&D in potential growth engines including labor-intensive industries, and improving efficiency and long-term planning in public services. Adopting a strategy with a view to the future will enhance our ability to fully utilize our potential for inclusive growth, which will improve the standard of living for all parts of Israeli society.