Israel’s economy expanded 2.3% in 2015, its slowest pace since the global economy slid into recession in 2009, the Central Bureau of Statistics said Thursday, citing preliminary figures.
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Other economic indicators pointed to growth slowing going forward, although most economists see some improvement in 2016.
The bureau’s end-of-the-year estimate will be subject to revisions – and in past years those ended up significant – but the estimate offered Thursday was already down from the 2.5% the bureau’s economists forecast in October.
The 2.3% marked the second year in a row the growth pace declined, and it was less than half the pace the economy registered in 2010 and 2011.
The downgrade came three days after the Bank of Israel lowered its estimate for 2015 gross domestic product growth to 2.4% from the 3% forecast made in September. The central bank said growth would pick up in 2016 to 2.8%, but it cut the increase from a previous estimate of 3.3%.
One reason for the bureau’s downgrade was revised figures showing slower growth than originally estimated for the third quarter, with the pace running at an annualized 2%.
GDP expanded at a 2.3% pace in the first quarter of 2015 and then ground to a near halt of 0.2% in the second. Economists’ expectations that the second-quarter slack might be recovered in the third never materialized.
On a per capita basis, Israel’s GDP growth is very low because its population is growing faster than in most developed countries. Per capita GDP for countries belonging to the Organization for Economic Cooperation and Development is expected to grow about 1.5% for 2015, with Israel’s expanding just 0.3%.
Economists and the Bank of Israel are still forecasting an improvement in Israel’s economic performance in 2016.
“We’re optimistic concerning the local economy,” said Alon Glazer, deputy CEO for research at Leader Capital Markets. “We believe economic growth will be 2.7% in 2016, with an increase in consumer spending of 3.5% and low unemployment of 5% to 5.3%.
Inflation will continue to stay low, probably not exceeding 0.9% in 2016. For that reason, we expect interest rates to remain unchanged in the coming year and the first rate rise to be put off to 2017.”
Bank of Israel Governor Karnit Flug signaled as much this week, resisting pressure from Finance Minister Moshe Kahlon to raise rates and cool the housing market.
She said the central bank’s base lending rate, now at a record low 0.1%, won’t be rising for some time even though the U.S. Federal Reserve took the historic step of raising its rates in December.
“It will be difficult to raise interest rates like the U.S. because 60% of mortgages in Israel have variable interest rates and there’s a fear raising rates will hurt borrowers and the financial system,” said Elad Shemesh, a vice president at online trader Colmex.
As in the past two years, the statistics bureau said the weakest spot in Israel’s economy was exports. Exports of goods and services dropped a preliminary 3%, the bureau said, after a modest increase of 1.5% in 2014 and no change in 2013.
Industrial exports, not counting polished diamonds, showed a 0.3% decline, turning around from a 3.9% increase in 2014. But the main trouble spot was incoming tourism, which is treated in national accounts as a service export. Revenues from tourism dropped 1.2% after a 2.1% decline in 2014, when the Gaza war hit the industry hard.
But even excluding tourism, Israel’s service exports were down a preliminary 2.4% in 2015, reversing a 9.2% increase the year before. Exports of diamonds plummeted 20.4% and farm exports 12.2%.
Imports of goods and services declined a preliminary 0.2% in 2015 after rising 3% the year before and 0.5% in 2013. Not counting imports of defense gear, ships and unpolished diamonds, imports rose 1.9%, slowing from 3.3% in 2014.
On the other hand, consumer-spending growth remained strong in 2015 despite the tepid economy. The bureau said spending climbed a preliminary 4.5%, accelerating from its 3.7% increase in 2014. Spending on consumer durables such as home appliances and automobiles dropped 2.2% on a per capita basis, but spending on categories like food and gasoline rose 3.5%.
A worrying sign for the economy was the continuing decline in investment in fixed assets, although two key areas showed preliminary rises. Investment in fixed assets dropped 1.5%, extending a 2% drop in 2014.
Investment in nonresidential construction fell a preliminary 1.1%, extending a 10% drop the year before. There was also a 3.1% investment decline in intellectual property like research and development and software.
On the other hand, investment by business in machinery and equipment rose 2.5%, and investment in residential construction rose 2.1%, reflecting a quickening pace in housing starts, the statistics bureau said.