Israel's Economy Growth Comes in Slower Than Expected

Weighed down by a steep drop in exports and a decline in consumer spending, Israel’s economy grew an annualized 1.8% in the second quarter

The Bank of Israel building in Jerusalem.
Ronen Zvulun / Reuters

Israel’s economy grew an annualized 1.8% in the second quarter, slower than previously estimated, weighed down by a steeper drop in exports and a decline in consumer spending, the Central Bureau of Statistics said on Sunday.

In a preliminary estimate last month, the CBS had said gross domestic product grew an annualized 2% in the April-June period, less than the average forecast of 2.4% in a Reuters poll. But the CBS also revised its first-quarter GDP estimate higher to 5.1% from a previous 4.8%, leaving first-half growth at 4.1%.

The Bank of Israel, which forecasts 3.7% growth in 2018, has played down the second-quarter data, saying it does not indicate a change in trend, with most of the decline in growth deriving from fluctuations in vehicle imports. It also noted that more recent indicators show the economy “continuing to grow at a solid pace” led by strong consumer spending.

Excluding net taxes on auto imports, the CBS said GDP rose 2.8% in the second quarter compared with 3.9 % in the first quarter.

The central bank last month again held its benchmark interest rate at 0.1%, where it has remained for 3-1/2 years. A rate increase is expected as early as the fourth quarter of this year now that inflation has moved back to within its 1-3% target range.

Israel’s annual inflation rate dipped to 1.2% in August from 1.4% in July, the CBS reported last Friday.

In the second quarter, exports –which comprise over 30% of economic activity – fell 2%, more than a preliminary estimate of a 0.1% decline. Private consumption fell 1.7 percent versus an initial 0.5% rise.

Investment in fixed assets fell 3.7%, led by a 6.2% decline in residential construction, while government spending decreased by 3.9% and imports rose 1.3%.