Remarks by Prof. Michel Strawczynski, Director of the Bank of Israel Research Department, at the Brit Pikuach MBT Accountants Conference
According to the Bank of Israel Research Department’s assessment, in the first quarter of 2019 the economy grew by 2.7 percent, excluding the effect of vehicle purchases by companies and individuals. Based on Bank of Israel Research Department estimates, relying on the Business Tendency Survey conducted by the Central Bureau of Statistics, in April and May the economy continued to grow at a pace even higher than 3 percent (Figure 1).
The implication of growth at such a pace is that the labor market remains tight, without causing an additional notable decline in the unemployment rate. The economy is creating new jobs and an increase in business sector wages can be seen (Figure 2), but there is a decline in the number of job vacancies (despite an increase in April). It is important to note that between 2014 and the middle of 2018, there was a prolonged decline in the unemployment rate, while beginning in October 2018 the unemployment rate has increased slightly and recently has been relatively stable. The labor market’s expanding by a more moderate rate is reflected in the share of companies that see employee recruitment as a moderate or severe constraint to increasing activity—this share has been declining consistently for the past 9 months.
An additional important development, from the perspective of the Israeli economy, is the growth of exports. The increase is based on the high technology industries and on a continued shift to the services industries; these industries lead in the development of productivity due to global competition. Services export industries continue to drive export growth, while there was a moderate increase in goods industries. The trend of companies in the business services industry and medium and low technology industries, referring to export orders as a severe or moderate constraint, has been on a downward trend in the recent period; while for the high tech industry the constraint has been on an upward trend in the past year, though its level is relatively low (Figure 4).
An additional area in which a change is becoming apparent is the housing market. After a period in which housing prices declined, the decrease halted in recent months and some increase began. A continued decline in housing prices depends on the ability of the new government to continue to increase the supply of homes. In this regard, it is important that the new government maintain the capability displayed in recent years of increasing supply of homes, which has led to prolonged growth in building completions through the end of 2018.
 The survey is carried out among a representative sample of approximately 1,000 companies in various industries.