Israeli Economy Slowed Sharply in Q2, Even Before Gaza War

Preliminary figures show GDP grew at just a 1.7% annual pace even before the Gaza war.

Moran Mayan

Israeli economic growth suffered a marked slowdown in the second quarter, even before Operation Protective Edge depressed retail, tourism and manufacturing, as exports and investment both declined, the Central Bureau of Statistics said Sunday.

Preliminary figures showed that gross domestic product grew at a 1.7% annualized pace in the April-June period, down from a 2.8% pace in the first quarter and the slowest since the first quarter of 2013. As a result, the CBS said, GDP grew by 2.5% in the first six months, compared with 3.2% in the second half of 2013 and 3% a year earlier.

Growth in the second quarter was weighed down by a sharp 17.7% annualized decline in exports of goods and services and a decline of 4.5% in investment in machinery and equipment and in construction, the CBS said. But consumer spending enjoyed an annualized increase of 3.1% and public consumption rose at a 4.2% pace.

Imports of goods and services were down at a 5.5% rate in the three months while business sector GDP expanded at a 2.3% rate, the highest in five quarters, the CBS said.

The figures provide further evidence that economic growth is trending lower after peaking in 2010, when GDP grew at more than 5%. Exporters have been feeling the pressure of a strong shekel that makes their products less competitive abroad, and at the end of July the Bank of Israel reduced its base lending rate to its lowest since 2009 to encourage growth.

The 1.7% rate meant that on a per capita basis, there was no growth at all, but the third quarter should show even slower growth as Hamas rocket attacks took a toll on retailing and tourism, and forced many factories in the south of the country to reduce or stop production. Last week, the CBS reported that Israel’s trade gap widened as merchandise exports declined 6% from the monthly average so far this year.

Simi Barak, an economist at Harel Insurance & Finance, termed the second quarter “disappointing,” but held out hope that the government would revise the figure upward: “On careful examination, it seems reasonable to assume that following the estimate for the second quarter, foreign trade figures will be updated, along with the growth of output.”

In the first half, exports of goods and services grew by an annualized 0.9%, a slight improvement on the 0.6% increase in the second half of 2013 but down sharply from the 5.1% rise a year ago.

Excluding high-tech startups and diamonds trade, however, exports for the first half of 2014 were up by an annualized 7.7%, reflecting a 4.6% increase in industrial sector exports, a 16.3% rise in “other services,” but a major decline of 30% in agricultural exports. Diamond exports declined 13.7%.

Consumer spending slowed in the first half to just 1.8%, less than half the 4% rate in the second half of 2013. In spite of the strong shekel, imports were also slower in the first half, edging down at an 0.1% rate in the six months after a sharp 6.7% rise in the second half of 2013, the CBS said.