Israel's Economy Grew at Fastest Pace in Year-and-a-half in 2016's Second Quarter

The CBS said gross domestic product expanded at a 4% annual pace in the quarter, up from its original estimate of 3.7% just a month ago amid surging consumer spending, imports.

Moti Bassok
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An employee works at a laptop computer at the Jerusalem Venture Partners JVP Media Labs, situated in the JVP Media Quarter in Jerusalem, Israel, on Wednesday, Oct. 21 , 2015.
A high-tech worker in Jerusalem.Credit: Bloomberg

Israel’s economy grew at its fastest pace in a year-and-a-half in the second quarter, paced by double-digit growth in consumer spending and imports, while exports continued to gather pace, the Central Bureau of Statistics said on Sunday, citing revised data.

The CBS said gross domestic product expanded at a 4% annual pace in the quarter, up from its original estimate of 3.7% just a month ago. That would be it the fastest pace since the final quarter of 2014, when it grew at a 5.8%, figures showed.

Growth was strong almost across the board, but consumer spending was unusually strong, running at a 10% annual pace in the quarter while imports surged at a 24.2% rate. Government spending was also up a sharp 8.6% in the quarter.

Exports of goods and services, which had been a trouble spot for the economy, continued to gather pace, expanding at a 7.9% rate in the three months. Not counting exports of polished diamonds and startup companies, exports were 10.9% higher in the quarter.

With unemployment for the principal working-age population of 25–64 falling to a record low 3.9% in June, the Bank of Israel has expressed concern about the impact of a labor shortage, in particular in the high-tech industry, on continued economic growth. “This difficulty, if it continues to increase, is liable to serve as a limitation on the growth rate in the future,” according to a summary of the last Monetary Committee meeting of the central bank in August.

The only evident weak spot was investment, whose pace slowed in the quarter to 5.1%, down from double-digit increases in the previous two quarters, CBS figures showed. Investment in residential construction grew at a 2.9% rate, almost unchanged from the previous quarter and down from last year. Investment in machinery and equipment expanded at a 5.8% rate, down from double-digit increases in the previous two quarters.

The second-quarter figure raised the pace of GDP growth in the first half of 2016 to 3%, up from a preliminary estimate of 2.9%. Business-sector GDP, which excludes government, expanded at a 3.8% rate in the second quarter. Excluding startup companies, the increase was 2.8%, the statistics bureau reported.

Ofer Klein, chief economist at Harel Insurance & Finance, said last week that figures for August pointed to a 1.3% increase in merchandise exports for the third quarter.

“The break in the trend of declining merchandise exports that we have seen in recent weeks, even as the shekel has been strengthening and real wages have been climbing, strengthens our view that we will see strong [GDP] growth figures for the third quarter, too,” he said.