Israel's GDP Rise Cools to 1% Rate in 2nd Quarter

Slowdown due to drop in auto imports after first-quarter surge

Finance Minister Moshe Kahlon speaks at the Knesset, Jerusalem, May 20, 2019.
Olivier Fitoussi

The Israeli economy showed to a 1% annualized rate in the second quarter as automobile imports turned sharply lower, the Central Bureau of Statistics said on Sunday, citing preliminary results.

The decline in growth, however, was misleading. Car imports and the taxes the state collects on them have played havoc with the top-line GDP figures for the first half of this year: They rose sharply in the first quarter, boosting GDP growth to a revised 4.7% as importers front-loaded orders ahead of a change in taxes on cars that went into effect April 1.

With the tax in effect, imports plunged, cutting into second-quarter growth. The CBS said that discounting the impact of car imports, GDP growth in the second quarter was a preliminary 3.1%, only slightly lower than the first quarter’s 3.2%.

Turn lower.

In any case, the second-quarter data are preliminary and subject to revisions going forward, first-quarter growth was initially pegged by the CBS at 5.2% before being adjusted three more times to 4.78%.

Nevertheless, some economists are looking at slower growth in the second half of 2019 as world trade and economic growth cool. Jonathan Katz, chief economist at Leader Capital Markets, said economic barometers were pointing to weakness.

“The [Bank of Israel’s] companies survey shows a big drop in export orders, in other words we’re going to see a continued drop in exports. Households are more pessimistic and a situation like that is going to increase consumption,” Katz said.

“Whatever government is formed next after the election it will have to make fiscal adjustments because it will have no choice. That means budget cuts and tax hikes … and that the will hurt disposable incomes and reduce consumer spending ever more,” he warned.

Second-quarter GDP was weighed down by consumer spending, which dropped an annualized 1.3%, or 3% per capita. That marked a sharp decline from 3.8% in the first quarter and 5.3% in fourth-quarter 2019.

Exports of good and services, a key part of the economy and a growing concern due to the strong shekel, were down an annualized 2.8%. But discounting the diamonds sector and startup companies, they were ahead 4.6% in the quarter.

Investment in fixed assets declined at a 3.2% rate, but investment in residential construction showed a 2.6% increase. Public spending was up 10% and imports of goods and services up 2%.