Second-quarter Economic Growth Is Revised Lower

Statistics bureau revises figures sharply down as exports tumble.

Bloomberg

Israel’s economy grew at an annualized rate of 1.5% in the second quarter of 2014, the slowest since early 2009, the Central Bureau of Statistics said yesterday, revising its figures downward from a preliminary estimate a month ago of 1.7%.

The agency attributed its downward shift in the forecast to a greater than expected drop in exports. Exports, which comprise some 40% of Israel’s economy, slid 19.8%, steeper than the 17.7% drop forecasted a month ago.

The bad news about economic growth came a day after the agency reported that consumer prices didn’t rise at all in August, a figure that many economists said signaled slumping consumer demand.

“Our inflation is even lower than Europe’s and reflects increasing competition and weak demand by consumers who feel uncertain and prefer to delay purchases,” said Alex Zabezhinsky, chief economist at the investment house Meitav Dash.

The second-quarter figures precede the start of Operation Protective Edge, the 50-day conflict with Hamas that depressed retailing and tourism and to a lesser extent manufacturing. By threatening to reduce the growth in tax revenues next year, the slower economy also complicates the treasury’s efforts to piece together a 2015 budget.

The Finance Ministry on Monday lowered its 2014 growth estimate to 2.4% due to the conflict and slowing global trade, and cut its growth forecast for next year by 0.2 percentage points to 2.8%.

The downward revision may put pressure on the Bank of Israel to lower short-term interest rates further, even though it has cut them twice to a record low 0.25%.

Zabezhinsky said the central bank may cut the rate next Monday. He speculated the bank might also undertake a program to buy bonds and foreign currency to ease credit.

But Ofer Klein, economist at Harel Insurance & Finance, said he doubted the Bank of Israel would take either step. Bond-buying, he warned, would help push up asset prices, like homes and shares.

One ray of hope for the economy comes from the shekel. The shekel depreciation, which has reached 7% since mid-July, could spur exports by making Israeli companies more price competitive.

Apart from the steeper decline in exports than originally reported, the bureau said on Tuesday that consumer spending grew at a 4.3% annual rate in the second quarter, up from 3.1% in the previous estimate and more than double the first quarter pace.

Investment in fixed assets fell at a revised 4.6%, a slightly biggest decline than previously reported, as investment in both industry and residential building fell for the second straight quarter. Government spending grew 3.2% (down from a previous 4.2%) while imports slipped 7.3% (versus a previous 5.5% ).