Israeli Economy Picks Up Steam in 2nd Quarter

The country's GDP expanded at 2.7% rate in second quarter led by consumer spending, new data shows

Finance Minister Moshe Kahlon, June 19, 2017
Olivier Fitoussi

Israel’s gross domestic product picked up steam in the second quarter after a slow first quarter as consumer and capital spending rallied, data released Wednesday by the Central Bureau of Statistics showed.

GDP grew at a 2.7% annual rate in the period, compared with just 0.6% in the first quarter, though even the higher pace was slower than in 2016, when GDP expanded at a rate of more than 4%.

The CBS said consumer spending rose at a 6.5% annual rate in the quarter, boosted by consumption of durable goods, such as cars. In the first quarter, consumer spending dropped 1% as a car-buying boom triggered by more favorable taxes last year petered out.

Durables spending on a per-capita basis plunged at close to a 31% rate in the first quarter but reversed course and climbed 11.8% in the second.

Another factor lifting growth from the first quarter was an increase in investment by business. Investment in fixed assets rose at a 5.2% rate in the three months after two quarters of declines.

Looking up, after slowing down

However, for Finance Minister Moshe Kahlon, who is trying to increase the housing stock to stem rising home prices, the investment figures were likely a disappointment. While capital spending on machinery and equipment rose at an 8% rate, spending on residential construction contracted 1.2% following a decline in housing starts since the beginning of 2016.

Exports of goods and services also declined, the CBS said. However, the overall drop of 8.8% on an annualized basis was due to a sharp decline in exports of polished diamond and high-tech goods. With them, exports rose at a 1.8% rate in the first half, the CBS said, despite an appreciation of the shekel.

Yaniv Bar, an economist at Bank Leumi, said Wednesday that goods exports would likely pick up later in 2017 after two years of declines as Intel’s Kiryat Gat semiconductor plant speeds production of next-generation products.

“It is only a single factory, but in light of its huge weighting has a major influence,” he said. “Also, the gradual improvement of Israel’s trade partners will support merchandise exports.”