Israel's Economic Growth Slows to Lowest Rate in Over Three Years

Last quarter data shows exports and investments at a slump; overall growth lower than previous expectations.

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Israel’s economy grew at just a 2.8% annual rate in the second half of last year, slowing from a 2.9% rate in the first half and a 3.3% rate in the second half of 2011, the Central Bureau of Statistics reported on Sunday, citing preliminary figures.

In the final three months of last year, the pace was its slowest in three-and-a-half years, growing at a 2.5% annualized rate, compared with 2.8% in the third quarter, the bureau said. A year ago, gross domestic product was expanding at a 3.5% rate.

The figures came as no surprise, as other economic data had already pointed to a slowing economy. Nevertheless, they come as disheartening news for Prime Minister Benjamin Netanyahu and his finance minister, Yuval Steinitz, who have to try a trim a massive budget deficit at a time when tepid economic growth is hurting tax revenues.

Economists say the pace of GDP will probably remain about the same or even slow further in the first half of this year. Bank of Israel was forecasting for the year as recently as December when it said the economy would grow 3.3%, slowing to 2.8%, not counting the effect of natural gas coming on line from the Tamar field during the year.

Tepid growth in Israel came as the euro zone slipped deeper-than-expected into recession in the last three months of 2012 after its largest economies, Germany and France, shrank at the end of a wretched year for the region. Economic output in the 17-country region fell by 0.6% in the fourth quarter, EU statistics office Eurostat said on Thursday, following a 0.1 percent output drop in the third. The quarter-on-quarter drop was the steepest since the first quarter of 2009.

The slowdown in the second half of 2012 came as growth in consumer spending slumped to just a 1.1% annualized rate, less than a third the level of the first half the year. In the final quarter of 2012, spending was nearly stuck, edging up at just an 0.3% rate.

A sign of cautiousness among consumers was the sharp drop in spending for consumer durables, meaning purchases of goods like appliances. On a per capita basis, they were down for the third quarter in a row, bringing the decline to 1.41% on an annualized basis in the second half of 2012. Excluding durables, consumer spending edged up at an 0.5% rate but was down in the final quarter at a 1.1% rate.

Government spending rose at a faster pace of 1.8% boosted by a surge of 5.1% in the fourth quarter but it nevertheless was lower than the 2.6% pace it registered in the first half of last year, the bureau’s figures showed.

Exports of goods and services declined at a 1.6% annualized rate in the second half of 2012, after growing at a 3.6% rate in the first half the year. Still, the export slump in the second half was more moderate than a year earlier, when it was down at a 3.5% rate.

More worrying for the future, investment declined at a 5.5% rate in the second half and at an 11.7% rate in the fourth quarter. Home construction slumped, but the pace of declining capital spending in other sectors of the economy was far sharper down at a 7.5% rate in the second half and a 12.5% rate in the fourth quarter the bureau reported.

Business sector GDP, which excludes the public sector, grew faster in the final half of the year than in the first 3.2% versus 3% but the rate slowed in the fourth quarter to 2.9%. It had grown at a 3.1% rate in the third quarter and 3.4% in the second quarter, the bureau said.

Finance Minister Yuval Steinitz, center, and Bank of Israel Governor Stanley Fischer at a Finance Ministry meeting.Credit: Emil Salman

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