Growth of Israeli Economy Lowest Since Global Financial Crisis in 2009

Economy expanded at an annualized pace of 2.2% for the final six months of 2015, Central Bureau of Statistics reports.

Eyal Toueg

Israel’s economy expanded at an annualized pace of 2.2% for the final six months of 2015, according to figures published by the Central Bureau of Statistics Tuesday. This is the lowest six-month growth figure in Israel since the first half of 2009, when the world was in the throes of the global financial crisis and Israel’s economy shrank by 1.6%.

This figure is less than the 2.9% annualized growth for the first half of the year, and the 2.6% figure for the second half of 2014.

Following the global financial crisis, Israel’s economy seemed to be expanding at a rapid pace. In the first half of 2011, for instance, the economy expanded at an annualized 5% pace, which followed the 5.7% expansion in the second half of 2010 and the 5.6% expansion in the first half of that year. At that time, Israel’s economy was thought to have an annual potential for growth of about 5%.

In the last quarter of 2015, the economy expanded at an annualized 3.3% pace, versus 2.5% in the third quarter, 0.8% in the second quarter and 2.8% in the first quarter. In the final quarter of 2014, the rate of growth was 5.8%.

An annualized pace of growth refers to the rate at which an economy would grow had it maintained that pace for an entire year.

To date, the Finance Ministry and the Prime Minister’s Office have not expressed major concern over Israel’s slowing growth, even though this is a major macroeconomic indicator.

Idan Azoulay, CEO of Epsilon Mutual Funds, stated that the growth figures were significantly influenced by an increase in public consumption, which was driven by increased government spending enabled by excess revenues last year. He noted that private consumption also began increasing after staying steady for the previous 12 months, which leaves room for cautious optimism.

The statistics bureau figures indicate a 5.2% pace of public consumption growth, as well as a 3% pace of private consumption growth. Exports of goods and services expanded by 2.2%, and the investment in fixed assets increased 0.9%. Imports of goods and services expanded by 5.2% in 2015.

Private consumption had increased at a quicker pace of 4.8% in the first half of the year. Private consumption per capita, considered the measure of quality of life, increased 0.9% in the second half of the year, after a 2.8% increase in the first half.

Per-capita spending on durable consumer goods increased by 3.9% in the second half of 2015, after dropping 11.2% in the first half of the year. This figure had increased 21.6% in the second half of 2014. Per-capita purchases of household goods including refrigerators and air conditioners increased 1.6% in the second half of the year, while per-capita expenditures on furniture, jewelry and watches increased 2.6% and per-capita vehicle purchases increased 17.3%, following a drop of 31% in the first half of the year.

Per-capita consumption of non-durable goods increased at a 1.1% pace for the second half of the year, following a 0.9% increase in expenditures on services, including communications, transportation, education, health, culture and housing. Per-capita expenditures on food, drinks and tobacco products did not increase.

The investment in fixed capital – meaning investments in industry, residential construction and public transport – increased 0.9% after declining 2% in the first half of the year and dropping 1.5% in the second half of 2014.

Public consumption spending increased by 5.2% in the second half of the year, after an increase of 0.7% in the first half and 5% in the second half of 2014. Civilian spending increased 3.5%, while defense spending rose 4.8%.

Goods and services exports increased 3.6% after dropping 3.3% in the first half of the year and 1.1% in the second half of 2014. This includes a 4% increase in industrial exports, and a 0.6% increase in tourism exports.

Agricultural exports dropped by a sharp 22.6% and expenditures on foreign workers dropped 2.4%.

Diamond exports, which are given to high volatility, dropped 20.5%.