Bank of Israel Pares 2021 GDP Outlook While Hiking Next Year’s

(Bloomberg) -- The Bank of Israel lowered its economic growth forecast this year but expects next year's output to approach pre-pandemic projections.

The economy will grow 5.5% this year, compared to the 6.3% last forecast, the central bank's research department said on Monday. Economic output will expand 6% next year, an upward revision from the last mark of 5%, and just half a percentage point lower than forecast before the pandemic.

Against this backdrop, the Bank of Israel kept its benchmark lending rate at 0.1%, a decision predicted by all 13 economists surveyed by Bloomberg. Israel's shekel was little changed to 3.2664 to the dollar at 4:38 p.m. in Tel Aviv.

The Israeli economy shrank an unexpectedly sharp 6.2% in the first quarter as a government-imposed coronavirus lockdown took a toll, but it's been rebounding since it reopened in March. The budget deficit crept down to 10.5% of output in May and consumer confidence has skyrocketed in recent months. But the delta variant has sent cases surging in the past two weeks, and that “poses some risk to the continued recovery of the economy,” the central bank said in a statement.

The job market's recovery is also somewhat more sluggish than expected. Unemployment dropped below 10% last month, the lowest since the pandemic began, but is still nearly triple the rate before the crisis struck. Although the end of furlough benefits last month will accelerate a return to work, Bank of Israel Governor Amir Yaron has said it will take a few years to return to pre-pandemic levels.

In the coming months, the new government faces several major tasks to ensure a broad economic recovery, including passing a budget that will rein in the nation's debt and training workers for the recent changes in the global economy. Officials are also weighing new virus-related restrictions if the number of new cases doesn't come down.