Led by consumer and government spending, the Israeli economy grew by a surprisingly strong 5.1% in annual terms during the second quarter, according to figures released Sunday by the Central Bureau of Statistics.
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The growth marked a rebound after the annual rate of expansion for gross domestic product had dropped to 2.7% in the first quarter from 3.1% in the final quarter of 2012. It also brought the growth rate for the first half of the year to 3.4% in annual terms, down a hair from the 3.5% in the second half of last year and 3.1% in the first half of 2012.
Sunday’s figure also easily beat a 3.6% growth forecast in a Reuters poll of economists.
The numbers are only preliminary, and Israeli GDP figures often undergo sharp revisions later. Still, investors were encouraged by the news, with the Tel Aviv Stock Exchange’s benchmark TA-25 index turning higher after earlier declines.
Domestic spending was the driving force behind the accelerated output, including an 8.3% jump in public expenditures and a 6.7% rise in consumer spending in annual terms.
“If the rise of 6.7% in private spending is right, then the economy is very, very strong,” said Ofer Klein, head of economics and research at Harel Insurance. He added that a change in the statistics bureau’s methodology probably helped push the GDP number higher.
The natural gas wild card
Natural gas production at the Tamar field off Israel’s coast started at the end of March, and analysts said this had helped the economy, even if it was hard to quantify the impact. The Bank of Israel is projecting GDP growth of 3.8% for all of this year – a full one percentage point of that due to Tamar.
The good news was by no means universal. The statistics bureau reported that exports of goods and services barely rose – a 1.2% annual rise – while investment in fixed assets fell 6.3%.
Overall available economic resources from domestic production and imports increased during the first half by 1.3% after dropping 0.7% in the second half of 2012 and rising 5.4% in the first half of that year. Imports of goods and services declined 2.3% in the first half following a 13.2% plunge in the second half of last year.
Expenditures on personal consumption rose 5.1% in annual terms during the first half, against 2.1% during the previous half and 4% a year earlier. Per capita personal spending, also defined as the standard of living, grew 3.1% on an annual basis in the first half after edging up a mere 0.2% in the second half of 2012. This compares with a 2.1% gain for the first half of 2012.
The rise in per capita spending reflected a 10.2% jump in household expenditures on durable goods – such as furniture, appliances and air conditioners – during the first half in annual terms, along with a 1.4% increase in current consumption such as food, housing, gasoline, and services.
Expenditures on public consumption excluding defense imports rose 4.3% in the first half against 2.0% in the second half of 2012 and 1.8% in the first half of last year. Defense spending rose 9.6% in annual terms during the first half while civilian spending increased 4.3%.
Investment in fixed assets, which includes home and other construction, machinery and equipment, fell 6.5% in the first half after a 7.7% drop in the second half of last year. The figure rose 4.1%, in the first half of last year.
Investment in fixed assets in the business sector was down 9% following a 10% drop over the previous six months, after rising 2.8% in the first six months of last year. Investment in housing was down 2.1% in the latest half, on the heels of a 1.2% slide in the second half of 2012. It climbed 6.2% in the first half of 2012.
Exports, including diamonds and startup companies, rose 3.9% on an annual basis in the first half, turning around from a 5.2% decline the previous half but down from a 5.7% gain a year earlier. Discounting diamonds, startups and services, exports actually declined 2% during the first half, reflecting a 1.5% drop in industrial exports and a 14.9% plunge in agricultural exports. Diamond exports rose 13.4% during the half on an annual basis.
With reporting by Reuters.