The counter-cyclical measures introduced during the global downturn are steadily being withdrawn, as the economic recovery that began in the second quarter of 2009 gathers momentum. With recent GDP numbers surprising on the upside-and led by resurgent domestic demand-we expect the Bank of Israel (the central bank) to step up the pace of tightening.

Mr Netanyahu has a well-known preference for tax cuts, privatisation and economic liberalisation. However, political, regulatory and fiscal constraints will limit his ability to push forward as fast as he would like. In response to a wave of recent protests, the government has been obliged to offer a raft of concessions designed to soften the impact on households of the rising cost of fuel and other sensitive items. As a result, planned cuts in corporation tax and personal taxation may need to be postponed in order to finance some of these concessions.

The privatisation of the Israel Discount Bank was recently completed. The government has also reduced its stake in Bank Leumi to 6.5%, after selling 5% of the company's shares to UBS of Switzerland in January 2011. However, the authorities have stalled on their plans to sell the postal service. The first phase of the privatisation of the ports is scheduled to begin shortly but will prove politically challenging, as will the restructuring of the politically powerful Israel Electric Corporation.

A new taxation structure for the energy sector has been approved by the cabinet and is now awaiting ratification in the Knesset. The new scheme is based on the recommendations of the Sheshinski Committee and will boost the government's share of oil and gas revenue to between 52% and 62%, from around one-third at present.