Israel’s economy bounced back from its worst three months in 40 years, as third-quarter gross domestic product grew at a preliminary 37.9% annual pace from the second, the Central Bureau of Statistics reported on Monday.
The double-digit increase, covering the period from July 1 to September 30, came as the economic activity resumed with the end of the first lockdown in May. It was somewhat depressed by Israel’s entering a second lockdown in the second half of September.
“The impact of restrictions imposed due to the coronavirus crisis was significantly bigger in the second quarter compared with the third, hence the recovery in the third quarter relative to the previous quarter,” the bureau said.
Moreover, the encouraging news of the GDP figure was undercut by continued high unemployment in the second half of October, even as Israel mostly exited its second lockdown. The statistics bureau’s broadest measure of joblessness, which includes people who are on unpaid leave, fell to 18% in the two weeks, down from 22.7% in the first half of the month.
GDP per capita rose 7.9% on an annual basis in the third quarter, the bureau said. But testifying to the extent of the damage wrought by the pandemic and lockdowns, it was still down to the same level it was in second-quarter 2017, more than three years.
Moreover, in spite of the quarter-on-quarter rise, Israeli GDP hasn’t fully recovered from the effects of the coronavirus and lockdowns, noted Ofer Klein, chief economist at Harel Insurance & Finance.
“The rapid growth didn’t compensate for the drop in the first half of the year, thus GDP was down 1.4%, compared with third-quarter 2019, the figures showed,” Klein said in a note. “Nevertheless, by international standards, Israel’s situation is relatively good compared to most developed economies.”
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Of 10 global economies, only China (with growth of 4.9%) and South Korea (with a decline of 1.3%) outperformed Israel in the third quarter. Among the other seven, GDP dropped year on year between 2.9% and 9.6%, figures from Harel showed.
Klein said he raised his outlook for Israeli GDP for all of 2020 to negative growth of 3.5% from a previous minus-5%. Taking into account both the economy’s performance and the two announcements this week of coronavirus vaccines, the Bank of Israel, he said, should probably refrain for now from taking any further expansionary measures.
On the other hand, Israel’s recovery in the third quarter was much more modest than for other developed economies. Third-quarter growth in the European Union was 12.1% in annual terms, with Spain’s recording an expansion of 16.1%, Italy 16.1% and France 18.2%. On the other hand, the U.S. recovery was a much slower 7.4%.
The statistics bureau said business sector GDP grew at a faster pace of 43.1% in annual terms than the overall economy in the third quarter. The reopening of stores and restaurants in May caused consumer spending to jump a seasonally adjusted 42% in the third quarter, after plunging at a 43.7% rate in the second.
Israeli imports of goods and services fell at a 7.5% annual rate in the third quarter. Incoming tourism (which is deemed a service import) recovered slightly in the summer months, but the bureau noted that it remained at very low levels. Exports, on the other hand, recovered strongly, increasing at a 9.7% rate after dropping at an 8.3% rate in the second quarter (not counting polished diamond or startup companies).
Government spending continued to grow as the state spent tens of billions of shekels to counter the effect of the coronavirus. However, the annualized increase was far smaller in the third quarter (5.1%) than in the second (22.7%). Investment in construction was up at a 9.7% rate following a second-quarter drop of 15.8%.
Despite the third-quarter recovery, in the first nine months of this year, the economy was 3% smaller than it was the same time in 2019, the bureau said.
Israel still faces the fallout of the second lockdown and the continued closure of many segments of the economy, most importantly much retail, entertainment and tourism that will likely weigh on the fourth (current) quarter. The Bank of Israel in its latest forecast expects GDP to contract in its best-base scenario 5% this year and in its worst-case scenario by 6.5%.
As to the unemployment figures, the slow pace of the decline in joblessness reflects the fact that parts of the economy still haven’t returned to business. However, the statistics bureau noted that about 190,000 people on unpaid leave returned to their jobs in the second half of October, cutting the total 436,800 from the first half of the month. People on unpaid leave accounted for close to 60% of all the unemployed.
The official jobless rate, which only counts those who have lost their jobs and are actively searching for one, fell slightly to 4.8% from 5.1% in the first half of the month. The third category of jobless in the bureau’s broad definition – people who were dismissed from work due to the coronavirus, even if they are not actively seeking employment – edged down to about 103,700 people from 104,900 in first-half October.