This document presents the forecast of macroeconomic developments compiled by the Bank of Israel Research Department in July 2018 in terms of the main macroeconomic variables—GDP, inflation and the interest rate. According to the staff forecast, gross domestic product (GDP) is projected to increase by 3.7 percent in 2018, compared with 3.4 percent in the previous forecast, and by 3.5 percent in 2019, similar to the previous forecast. The rate of inflation over the next year (ending in the second quarter of 2019)  is expected to be 1.4 percent, compared with 1.2 percent in the previous forecast. The Bank of Israel interest rate is expected to increase to 0.25 percent in the fourth quarter of the year, and to increase once more in the third quarter of 2019.



The Bank of Israel Research Department compiles a staff forecast of macroeconomic developments on a quarterly basis. The staff forecast is based on several models, various data sources, and assessments based on economists’ judgment. The Bank’s DSGE (Dynamic Stochastic General Equilibrium) model developed in the Research Department—a structural model based on microeconomic foundations—plays a primary role in formulating the macroeconomic forecast. The model provides a framework for analyzing the forces that have an effect on the economy, and allows information from various sources to be combined into a macroeconomic forecast of real and nominal variables, with an internally consistent “economic story”.​

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