Israeli Economy Grew During Gaza War, Revised Stats Show

Latest CBS revision shows that GDP edged up 0.2% in third quarter, despite economic toll of 50-day conflict.

Shoppers packing the Azrieli Center mall in Tel Aviv.
Ofer Vaknin

The deleterious impact of Operation Protective Edge on Israel’s economy keeps getting smaller and smaller as time passes.

In its third estimate since November, the Central Bureau of Statistics said on Sunday that Israel’s economy actually grew at an annualized 0.2% rate seasonally adjusted in the third quarter while the 50-day war with Hamas in the Gaza Strip was raging.

That marks the second revision higher since the CBS said in December that gross domestic product fell an annualized 0.1% in the quarter and an original estimate made the month before that of an 0.4% decline.

The war brought consumer spending, construction and manufacturing in much of Israel to a standstill during July and August last year while tourism plunged. That caused the Bank of Israel to slash interest rates to a record low as it sought to encourage economic activity.

While the third quarter has not proven as bad for growth as had been feared, the fact is Israeli economic growth for all of 2014 was sluggish. The CBS estimated that growth slowed to 2.6%, its slowest in five years.

Moreover, even as the economy posted modest growth in the third quarter, the rate marks a consistent slowdown since the second quarter of 2013 when GDP rose at a 5% annual rate. Still, the Bank of Israel forecasts a pickup in 2015, with GDP expanding 3.2%, among other reasons because a depreciation of the shekel has given a lift to Israeli exports.

In its latest revision, the CBS kept to its original estimate that quarterly exports grew at a 4.6% rate while consumer spending rose 3.4%. But it revised its estimate for investment in fixed assets to a fall of 6.5% from a 10% drop previous estimated.

Part of the decline investment was due to the government’s abortive plan to eliminate the 18% value-added tax on purchases of new homes for most buyers. The plan, which never won Knesset approval for the government fell, caused builders to suspend construction while they awaited legislation to be passed. Investment in residential construction was down 2.2% in the third quarter as a result.

“There is no doubt that expectations for the VAT law affected the housing market fairly strongly, and as a result, the building sector,” Oz Shimony, head of macroeconomics at the bureau, told Bloomberg News. “It can clearly be seen in fixed capital investment figures.”

Discounting imports of defense equipment, ships, aircraft and rough diamonds grew 6.9% in the third quarter, down from a previous estimate of 9.8%. Exports, not counting exports of polished diamonds or startup companies, declined just 1.6%, lower than the previous estimate of 4.4%, the CBS said.

Incoming tourism, which is counted by government statisticians an a service export, plummeted at a 77.7% annual rate in the quarter, with many airlines suspending service to Israel. However, diamond exports jumped 33.9% in the three months.

Business sector GDP, which doesn’t include government spending, declined at an 0.5% rate in the quarter, less than the previous estimate of minus 1.4%, the CBS reported.