Gov’t Revises GDP Growth to Almost Nil in Second Quarter

Treasury lowers its 2015-16 economic projections but still sees strong fiscal picture

Finance Minister Moshe Kahlon, left, and Prime Minister Benjamin Netanyahu.
Reuters

Israel’s economy showed virtually no growth in the second quarter, revised figures from the government released Thursday show, and the treasury downgraded its GDP forecasts for this year and next.

The Central Bureau of Statistics said gross domestic product expanded at just an 0.1% annual rate in the April-June quarter, revising downward an already low estimate of 0.3% it issued last month. Consumer spending grew tepidly while exports and investments both shrunk.

The Finance Ministry meanwhile said it now expected the economy to grow just 2.6% this year and 3.1% in 2016, down from earlier projections of 3.1% and 3.3%.

Nevertheless, it revised forecast for tax collections to 270.2 billion shekels ($69.6 billion), nearly 4 billion more than it previous expected, although the revised figure doesn’t include losses from a one percentage-point cut in the value-added tax going into effect next month. The treasury said the budget deficit target for 2015-16 remained unchanged at 2.9% of GDP.

“Finally the treasury is reporting rational figures with some grip on reality, even though the writing has been on the wall for some time,” said Shmuel Ben-Aryeh, investments director at Pioneer Group.

“Growth of 2.6% is the upper limit of what we can expect to achieve in 2015. In 2016, it will be also hard achieving that number because of the global economy and its impact on Israeli growth. Private consumption right now is the only encouraging data from the CBS, but it is likely to evaporate without any serious easing of the tax burden in Israel. Lowering VAT one point is enough,” Ben-Aryeh said.

Consumer spending rose at an 0.6% rate in the second quarter and at a 5% pace for the first half, extending a period of strong growth, the statistics bureau reported. The spending, however, was mainly for daily needs like food while spending on durables, like automobiles and furniture, fell sharply.

Investment spending, a key barometer for the economy, fell an annualized 3.4% in the second quarter and at a 3% rate in the half, extending a 2% decline in the second half of 2014. Spending on machinery and equipment by businesses dropped at a 7.8% rate in the first half, but investment in home construction rose 4.2%, reversing in the past year.

The bureau said exports of goods and services, not counting startup companies and polished diamonds, dropped at an 11.9% rate in the quarter. In the first half exports declined at a 7.7% rate, with industrial exports down 5%. Tourism receipts, which are categories as an export, jumped at a 34.6% rate, the bureau said.

In spite of its projections for slower economic growth, the treasury said the economy would continue to enjoy full employment. It said the jobless rate would likely average 5.1% this year, down from 5.9% in 2014. Wages will continue rising, in part due to new public sector labor agreements and a hike in the minimum wage.