Despite all the fears of an economic slowdown voiced by the Finance Ministry and the Bank of Israel, the Israeli economy grew strongly in the first quarter of 2008. According to figures released yesterday by the Central Bureau of Statistics (CBS), Israel's gross domestic product grew 5.4%, on an annual basis, in the first three months of the year.

Business-sector GDP grew even more, by 6.1%, while exports of goods and services increased by a huge 12.6% (all figures are on an annual basis).

The first-quarter growth rate was higher than the rate for 2007 as a whole, which was 5.3%. However, it was below the 5.8% growth recorded in the last quarter that year.

Exports grew last year by 8.4%.

In response to the happy news, Finance Minister Roni Bar-On told yesterday's G-30 conference in Jerusalem that the figures show the Israeli economy's ability to cope even with a global financial crisis. However, he added, it is necessary to keep an eye on global developments and maintain a stable policy of budgetary restraint.

Almost all of the figures for the first quarter were good. In particular, the CBS data showed a 6.2% rise in consumer spending and a 9.6% rise in investments in fixed assets.

The big rise in exports mainly reflected a steep 33.7% increase in service exports, primarily in the software and transportation sectors. Industrial exports were up only 6.2%. But all the export gains came despite the steep drop in the value of the dollar over the relevant period.

However, there was bad news regarding agricultural exports, which were down 40.1% from the previous quarter. Tourism service exports also fell 16.8%, while diamond exports were off 6.8%.

Imports of goods and services rose 18.7% during the quarter, compared to a rise of only 6.8% in the previous quarter. This reflects an increase in the amount Israelis spent overseas, as well as growing imports of software, transportation and communications services.

Private consumption rose 14.1%, or 12.2% on a per capita basis, which is considered a good measure of the standard of living. This followed a rise of only 1% in the previous quarter, though the quarter before that, July-September 2007, saw a 5.9% increase in per capita consumption.

The rise in the standard of living was best reflected in the enormous, record-setting increase in purchases of durable goods, a whopping 99%. The engine behind this growth was the 180% rise in automobile purchases in the quarter.

However, the public also bought more refrigerators, washing machines, and air conditioners - 16.4% more.

Figures for other consumer purchases, such as clothing, foreign travel, medicine and household maintenance, were up only 4.55% for the quarter, following a 2% decline in the last quarter of 2007.

The question everyone is waiting to hear the answer to today is how much Bank of Israel Governor Stanley Fischer will raise interest rates. The central bank's forecast for economic growth in 2008 as a whole was 3.2%, far below the first-quarter rate. The treasury was also way off base, at least for the first quarter: Its forecast was for 4.3% growth.