Israel’s economy grew 3.2% in 2018, lower than the 3.5% or more that had been widely expected and the slowest pace since 2015, the Central Bureau of Statistics said in a preliminary estimate Monday.
The figure, which was in line with Finance Ministry and Bank of Israel forecasts, will be subject to revisions and could end up being considerably different than the statistics bureau’s preliminary estimate.
Growth was led by higher exports as well as gains in private and government spending, and in investment in fixed assets, the bureau said, noting that its estimate was based on data from the first nine to 11 months of the year.
Still, Israel’s growth in 2018 was above that of most other Western countries, including a 2.9% rate in the United States and an average for countries in the Organization for Economic Cooperation and Development of 2.4%.
But on a per capita basis, Israel’s economy grew by just 1.2% due to a relatively fast 2% rate of population growth, putting Israel well below rates of 2.1% for the United States and 1.9% for the OECD.
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Psagot Investment House said it wasn’t disappointed by the moderate growth rate for the Israeli economy, noting that most of the components of gross domestic product were good. The overall rate was weighed down by higher imports, which included imports of equipment being used to put the Leviathan gas field into production, and higher car imports.
The investment house said it expected the Israeli economy to roughly maintain its current growth rate in 2019 and show only a slight decline, helped by higher government and consumer spending.
That should encourage the Bank of Israel and its new governor, Amir Yaron, to continue raising interest rates, although possibly not as soon as the next meeting of the monetary committee next week.
The Bank of Israel, which projects 3.6% GDP growth in 2019, raised its benchmark interest rate to 0.25% in December from a record low 0.1%. It was the first change in the rate since early 2015, which it ascribed to solid growth and rising prices.
Yaron, in his inaugural speech earlier this month, stressed that while the main challenge for policymakers was to normalize interest rates, hikes should not be so aggressive as to risk halting growth.
The statistics bureau said that in 2018, exports – which account for nearly a third of the Israeli economy – grew 4%, slowing from 5.1% the year before. Consumer spending rose 4.1% and government spending rose 4%, both accelerating from 3.4% in 2017. Imports were up 7.6% versus a 5.1% rise in 2017.
Investment in fixed assets increased 2.7%, slowing from 3% in 2017 and a 12.8% spurt in 2016. However, investment in residential construction plummeted 8.5%, reflecting a worrying drop for Finance Minister Moshe Kahlon in new-home construction.
The bureau also revised down third-quarter GDP to an annualized 2.1% from an initial estimate of 2.3%.