Treasury Blames High-tech for Growth Slump

Moody’s warns Israel will strain to meet 2.8% growth target for 2016.

High-tech workers in Israel.
High-tech workers in Israel. Credit: Tomer Appelbaum

Finance Ministry economists said yesterday that a big drop in high-tech exports was the main factor behind the slowdown in economic growth Israel suffered in the first quarter, as Moody’s warned that the country faced slower growth this year.

Yoel Naveh, the treasury’s chief economist, said in his weekly survey that while high-tech exports plunged at a 12% annualized rate in the first quarter, other exports showed a far more modest decline of just 0.9%. He said the brunt of the decline was in the electronics components, pharmaceutical and chemicals sectors – all of which fall under the high-tech rubric.

Naveh’s report came days after the Central Bureau of Statistics reported unusually tepid first-quarter growth of just 0.8% on an annualized basis. The pace slowed from 3.1% in the preceding quarter.

Naveh said a dip in consumer spending – the component of gross domestic product that has been driving the economy since exports began sagging in 2014 – also contributed to the slowdown, as did a decline in government spending.

The treasury report showed that Israel’s first-quarter growth was at the low end of countries belonging to the Organization for Economic Co-operation and Development, which ranged from a high of 4% for Norway to a low of -3.2% for Hungary. But, the report noted, several countries saw economic growth fall from the same time a year ago.

Meanwhile, international credit ratings agency Moody’s said the Israeli economy would have trouble meeting the government’s official growth forecast of 2.8% this year.

“The below-par growth outcomes add uncertainty to the authorities’ 2.8% growth assumption and in turn the 2.9% of GDP fiscal deficit target for this year. In turn, a worse fiscal outcome would imperil the continued improvement in the government’s debt metrics,” the agency said on Friday.

It warned that growth would likely be slower in the second half of the year, and expressed concern that the deficit could grow due to “the persistent weakness of the economy and the sacrificing of structural reforms for political considerations.”

Nevertheless, while the ratings agency said that while lower growth is a credit negative, it is retaining its current A1 government bond rating and Stable outlook.

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