Gov’t Revises Q1 GDP Figures Higher in Third Estimate

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Bank of Israel headquarters in Jerusalem. The central bank is due to decide on July 28 whether to lower its base lending rate from 0.75%.Credit: Tomer Appelbaum

The Central Bureau of Statistics revised higher its figure for first-quarter economic growth on Wednesday, saying gross domestic product expanded at a 2.9% annual rate as exports and government spending grew faster than previously estimated.

The revision was the third since its preliminary estimates, which had put GDP growth at 2.1% for the three months, and in June estimated it at 2.7%. Public sector spending grew at a 1.7% rate, up from just 0.2% in its first estimates, the CBS said, while exports of goods and services climbed 10.5%, up from a previous estimate of 6.3%.

The CBS said business sector GDP grew out at a 1.8% annual rate in the first quarter, up from an original estimate of 0.4% though down from 2.6% in the last quarter of 2013.

But investment declined at a slighter faster pace of 14.7%, versus 14.4% in its first estimate, while consumer spending remained tepid. The CBS said it showed no growth, although that was better than the 2% annualized decline it first predicted.

The revision comes in contrast to widespread expectations that the economy is slowing. Even the revised first-quarter figure shows output slowed from the 3.3% recorded in the final quarter of 2013.

At 0.3%, the June consumer price index, published on Monday, was slightly higher than forecast, which some economists said suggested that the weak consumer demand in the first part of the year was over.

Ofer Klein, chief economist at Harel Finance, said second-quarter growth would be in excess of 3% while the third quarter is shaping up to see a slowdown because of the fighting in Gaza, which is harming tourism, retail and investment.

“The consistent upward revisions in the data as well as the financial stability report published by the Bank of Israel this week reduces the chances of an interest rate cut in the next two weeks, assuming of course we don’t see any major development that changes the picture,” Klein said.

The central bank is due to decide on July 28 whether to lower its base lending rate from 0.75%. A rate cut would ease the upward pressure on the shekel, which has strengthened to a three-year high. But it would also cause yields in the corporate bond market, which the Bank of Israel reported this week to be inadequately pricing risk, to sink to even lower levels and would encourage more home buying, lowering mortgage rates.

Although investment was down sharply in the first quarter, the CBS said that was mainly due to declines of 4.4% in home construction and 17.4% in all other kinds of building. Investment in machinery and equipment rose at a 4.7% annual rate.

The increase in exports was due to a 9.8% annualized rise in service exports and a sharp 18.4% increase in merchandise exports. Imports rose at a 6.6% rate, faster than the CBS’s original estimate of 5.4%.

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