This document presents the macroeconomic staff forecast formulated by the Bank of Israel Research Department in April 2021 concerning the main macroeconomic variables—GDP, inflation, and the interest rate. The forecasts published throughout the COVID-19 crisis contained two scenarios, in view of the high level of uncertainty throughout the crisis. In view of the progress of the vaccination campaign and the decline in morbidity in recent months, this forecast contains a single main scenario based on the assumption that there will be no significant worsening of morbidity within the forecast range that would make it necessary for the government to reimpose restrictions on economic activity with significant macroeconomic implications.


According to the forecast, GDP is expected to grow by 6.3 percent in 2021 and by 5.0 percent in 2022, while the broad unemployment rate is expected to decline to 6 percent by the end of 2022.  The GDP level during these years is expected to be higher than in the “rapid inoculation” scenario from the forecast published in January, and in 2022 it is expected to be just 1.4 percent lower than the level expected according to the precrisis trend.  The inflation rate in the coming four quarters (ending in the first quarter of 2022) is expected to be 1.1 percent, and inflation in 2022 is expected to be 1.2 percent—both higher than the rates in the rapid inoculation scenario from the January forecast.  According to this forecast, the monetary interest rate is expected to be 0.1 percent one year from now.


There is significant uncertainty regarding the policy path that the incoming government will adopt.  As part of the forecast, we assume that the “COVID boxes” that were approved will not be fully utilized thanks to the economic recovery, and that the government will not approve additional boxes.  In addition, we assume that within the basic budget, which does not include the “COVID boxes”, the government will adjust its expenditures to the expenditure ceiling set out by law[1], and that from 2022 onward, it will also act to gradually reduce the structural deficit.  Under these assumptions, the government deficit is expected to be 8.2 percent of GDP in 2021, and 3.6 percent of GDP in 2022.  The debt to GDP ratio is expected to be about 77 percent in each of these two years.



The Forecast

In this forecast, as in the recent forecasts published, special emphasis is placed on an analysis of the volume of activity in the economy as a result of government restrictions to fight the spread of the virus. In addition, the forecast contains information from various other indicators and models. The Bank’s DSGE (Dynamic Stochastic General Equilibrium) model developed in the Research Department—a structural model based on microeconomic foundations—was used to combine them into a coherent macroeconomic forecast of real and nominal variables.[2]


[1] In 2021, this means an increase of the budget by about NIS 6 billion, beyond the interim budget currently set out by the law, and beyond the “COVID boxes”.

[2] An explanation of the macroeconomic forecasts formulated by the Research Department, as well as a survey of the models upon which it is based, appear in Inflation Report number 31 (for the second quarter of 2010), Section 3c. A Discussion Paper on the DSGE model is available on the Bank of Israel website, under the title: “MOISE: A DSGE Model for the Israeli Economy,” Discussion Paper No. 2012.06.


To the full forcast as PDF file​