Abstract
This document presents the macroeconomic staff forecast formulated by the Bank of Israel Research Department in January 2021 concerning the main macroeconomic variables—GDP, inflation, and the interest rate. The forecast includes two main scenarios: a scenario that includes a process of rapid inoculation of the population that lasts until May 2021 (hereinafter the rapid inoculation scenario), and a scenario that includes a more prolonged inoculation process lasting until June 2022 (the slow inoculation scenario).1 Following the date of full inoculation in either of the scenarios, there would be no government restrictions with significant impact on economic activity. As of now, in view of the rapid pace of inoculations over the past two weeks, it seems that the rapid scenario is significantly more likely than the slow scenario. In the rapid inoculation scenario, GDP is expected to expand by 6.3 percent in 2021 and by 5.8 percent in 2022. Inflation in the coming four quarters (ending in the fourth quarter of 2021) is expected to be 0.6 percent, and inflation in 2022 is expected to be 0.9 percent. The broad unemployment rate2 among those aged 15 and up is expected to decline to 7.7 percent of the labor force by the fourth quarter of 2020, and to continue to decline gradually to 5.4 percent at the end of 2022. The government deficit is expected to be 8 percent of GDP in 2021 and 3.6 percent of GDP in 2022, such that the debt to GDP ratio is expected to be 77 percent in 2021 and 75 percent in 2022. This is all under the assumption that the government carries out policy measures (lowering expenditures and increasing taxes) on a scale that is in line with the restraint derived from the legally mandated expenditure ceiling. Without such an adjustment, expenditures based on existing decisions will lead to a deficit of about 4 percent of GDP in 2022.3

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