Israeli 2019 GDP Growth Comes in Just Ahead of Forecasts

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Israeli banknotes, November 22, 2017.
Israeli banknotes, November 22, 2017.Credit: Olivier Fitoussi

Israel’s economy grew 3.3% in 2019, the Central Bureau of Statistics said in its preliminary estimate Tuesday, the economy’s slowest pace since 2015 but higher than the 3.1% the Bank of Israel and Finance Ministry predicted for most of the year.

The figure is only preliminary and will be subject to updates as more numbers come in, but as of now it points to a continued deceleration of economic growth – from 4% in 2016 to 3.6% in 2017 and 3.4% in 2018.

For the third quarter of 2019, the statistics bureau revised down growth in gross domestic product to a 4% annual rate from 4.1%, but the quarterly figures say little about growth trends. Rocked by huge swings in vehicle imports, GDP soared at a 4.6% annual rate in the first quarter, slumped to 0.8% in the second and revived to 4% in the third.

In any case, Israel can take pleasure in knowing that GDP growth in 2019 was the highest among Western countries and almost double the average of 1.7% for countries in the Organization for Economic Cooperation and Development. Israeli GDP surged 44% for the decade, the stats bureau noted.

Growth in 2020 is expected to remain close to 3%, but Bank of Israel experts have expressed caution given the country’s political stalemate. In March, Israel will have its third election in less than a year after the failure to form governing coalitions following elections in April and September.

Thus a 2020 budget is unlikely to be approved until at least the middle of the year. The current caretaker government is limited in its ability to enact economic policies or approve major spending.

The central bank held its benchmark interest rate at 0.25% on November 25, and most economists expect steady rates for the time being.

But the central bank’s monetary committee has said it believes “there may be a need to increase the extent of monetary policy accommodation going forward” if the economy weakens. The next decision on interest rates comes on January 9.

Israel’s population grew 1.9% in 2019, faster than for other OECD countries, thus per capita GDP growth – a rough measure of a country’s standard of living – was a considerably lower 1.3%, or 155,500 shekels – or some $44,000 based on current exchange rates without adjusting for purchasing power.

The number was higher than the average for OECD countries, whose per capita GDP growth was a preliminary 1.1% in 2019, the stats bureau said. That marked a change from previous years when Israel’s population growth was so big it left its GDP per capita under OECD levels.

Israel’s GDP growth in 2019 was weighed down by almost nil growth in investment in fixed assets and by weaker exports. Those were largely offset by gains in government and consumer spending.

Consumer spending rose a preliminary 3.9%, up from 3.7% in 2018, the stats bureau said. On a per capita basis it was up 2%. Spending was led by consumer durables, including an 11.3% per capita increase in car purchases. Israelis, however, spent less on home appliances (down 2.7% on a per capita basis) and big-ticket items like furniture and jewelry (down 1.4%).

Consumer spending on nondurables rose a more modest 1.7% per capita, and for food, beverages and tobacco just 0.8%, the stats bureau said.

Government spending rose a preliminary 4.1%, compared with 4% in 2018. Civilian spending increased 4.2%, compared with defense spending’s 3.7%.

But investment in fixed assets grew just 0.3% in 2019 after a 4.8% jump in 2018. Spending on machinery and equipment as well as vehicles declined, but it was higher in residential and nonresidential building and in intellectual property.

Exports, which account for around 30% of economic activity, increased 3.3%, down from 5.6% in 2018, the stats bureau said. Not counting diamonds and startup companies, however, exports were up 4.7% versus 5.1% in 2018. Imports rose 3.4%, down sharply from 6.4% in 2018. Discounting defense imports, aircraft and unpolished diamonds, imports grew 4.3%, down from 5.1% in 2018.

Labor productivity, a key marker of the economy’s ability to generate higher living standards, rose 2.8% in 2018. That was higher than 2018’s 2.5% but lower than in any year between 2014 and 2017.

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