Fresh Data Indicates Boost in Israel's Economy

Gross domestic product had been weaker than expected in the first six months of the year.

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Haifa port. A decline in exports helped drive down the GDP in the second half of 2013.Credit: Bloomberg

REUTERS - Israel's economy bounced back in the third quarter after a weak first half, growing by an annualized 2.5 percent on the heels of a rebound in exports and investment, initial data showed on Monday.

Gross domestic product had been weaker than expected in the first six months of the year, particularly in the April-June period when growth was just 0.2 percent, a figure the Central Bureau of Statistics revised from a previous 0.1 percent.

The third quarter growth rate matched the consensus economists' forecast in a Reuters poll.

The Bank of Israel is likely to be encouraged by the latest data, since policymakers have been reluctant to lower rates further or use unconventional policy measures. Since cutting its benchmark interest rate to 0.1 percent in February, it has stood pat for eight straight months despite weak growth and a deflation trend.

On Sunday, the statistics bureau said Israel's annual inflation fell to -0.9 percent in October from -0.5 percent in September - its 14th straight month in negative territory.

The central bank has downplayed both, saying weak growth has been due to largely temporary factors, while the negative inflation stems from falling commodity prices and lower costs in the economy, rather than a drop in consumer demand.

Private spending - which had been Israel's main growth driver of late, posting gains of about 6-7 percent a quarter between the second quarter of 2014 and the first quarter of 2015 - took a breather in the second quarter, rising just 1.5 percent. But spending rebounded 2.4 percent in the third quarter.

Exports - 35 to 40 percent of economic activity - grew 4.4 percent in the July-September quarter, while investment in fixed assets rose 0.7 percent, led by residential building, and government spending rose 1.6 percent. All three components had fallen in the prior two quarters.

The statistics bureau has previously estimated a 2.5 percent growth pace for all of 2015, near a 2.6 percent rate in 2014.

The Bank of Israel and finance ministry in September lowered their growth estimates to 2.6 percent from 2.9-3 percent. They both see growth above 3 percent in 2016.

Excluding the public sector, the economy grew an annualized 2.7 percent in the third quarter.