If the State of Israel had been publicly traded company, the headline news from the Central Bureau of Statistics on Monday about the double-digit rate of GDP growth in the third quarter would have been cause to call your broker and shout at him to buy the stock.
However, if you took a deep breath first and read the statistics bureau’s statement to the very end, you would never have made that call.
The CBS announcement said correctly that Israeli gross domestic product jumped a preliminary 37.9% in annual terms in the three months ended September 30, compared with the second quarter. Growth like that has never occurred in Israel any time in its history and certainly not in a moment of crisis. How did it happen now?
The answer has more to do with the wonders of statistics than any economic miracle. The second quarter had been particularly gruesome for the economy as Israel went into lockdown to deal with the growing coronavirus threat. In the third quarter, however, economic activity resumed: Hundreds of thousands of people who had been on unpaid leave returned to their jobs and even businesses, such as restaurants, bars and hotels, that posed a risk because they involved large numbers of people in enclosed spaces reopened. They and other businesses benefited from a splurge of consumer spending as Israelis emerged from the lockdown but still couldn’t vacation abroad.
The second quarter included all of April, when there was a nationwide lockdown; in the third quarter, the second lockdown only began in the last two weeks of the period, starting with Rosh Hashanah. Thus, if you want a more accurate picture of what happened in the third quarter, better to compare it to the third quarter of 2019. By that measure, GDP fell 1.4%, including a 9.7% drop in consumer spending and 10.8% drop in investment in fixed assets.
The coronavirus is not only having a profound impact on our health, the economy and society, it is also leaving its mark on statistics. The huge swings in economic data reflect the gyrations the economy has been experiencing since the arrival of COVID-19 in Israel and its effects – the first lockdown, the exit from the lockdown and the second lockdown, from which we are still emerging.
Under the circumstances, we would do better to look at the long-term data, for instance the 3% drop in GDP in the first nine months of this year. For those who think this understates the reality, in light of the high rate of unemployment, the collapse of businesses and other economic parameters, it would be wise to recall that in a normal year, the Israeli economy grows by 3.5%. In other words, the economy not only shrunk by 3% but lost 3.5% growth it could have expected had there been no pandemic.
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Here is another factor to take into account when looking at the third-quarter national figures. One of the most important economic data indicators in the Israeli context – due to the country’s high birth rate and population growth – is GDP per capita. According to the statistics bureau, that figure fell to the level it was more than three years ago, i.e., to the approximately $36,000 it was in the second quarter of 2017.
To get a better insight into the statistical troll created by the coronavirus crisis, recall Prime Minister Benjamin Netanyahu’s remarks when the second-quarter data were released three months ago: Israel’s economy was in better shape relative to other developed countries, who were hurt much more by the pandemic. That was true then. But now the tables have turned. Those countries whose economies contracted more sharply than Israel’s in the second quarter also posted sharper growth in the third.
Israeli GDP grew 8.4% in the third quarter, but in France the rate was 18.2%, in Spain it was 16.7% and Italy it was 16.1%. Israel is somewhere in the middle in the rankings of third-quarter recoveries, but for now it seems that the rule is the sharper the drop, the sharper the rebound.
If you compare Israel’s year-on-year growth in the third quarter, we do better.
Our 1.4% drop was similar to South Korea’s while most of Europe suffered declines three to five times what Israel did. That is due to the structure of the Israeli economy, which is more heavily geared toward high-tech, which has held up well during the crisis. On the other hand, tourism is a relatively small part of the economy, compared to most European countries.
If you want some reason to smile in these hard times, keep to the statistics bureau headline; if you want to get a hard-nosed sense of what’s really going on, read the fine print.