Israeli GDP Is Revised Lower for 2017's Second Quarter

Inflation returned in August after two months of declines

File photo: Real estate for sale in Israel.
Eyal Toueg

Israel’s gross domestic product grew at a annual rate of just 2.4% in the second quarter, the Central Bureau of Statistics reported Sunday, revising down its preliminary estimate of 2.7% growth after revising import figures higher.

That is higher than the first quarter’s 0.6% expansion rate, but down sharply from the 4.4% recorded in the last three months of 2016. The second-quarter figure was also well below a Reuters poll forecast of 3.2%.

In the second quarter, imports rose at a 3.4% annual rate, reversing a preliminary estimate of a 1.1% decline, the CBS said. Growth was led by a 6.5% increase in consumer spending while goods and services exports saw a 7% annualized decline, albeit revised lower from an original estimate of 8.8%.

The trend has officials worried; even though consumer spending has driven the economy in the last few years, they regard it as an unsustainable growth engine and are counting on exports to eventually take its place.

That hasn’t happened, but the Bank of Israel remains bullish on the economy, citing among other figures the low unemployment rate. In July the central bank revised its growth forecast for the year upward, to 3.4% from 2.8%.

On Friday, the CBS gave the Bank of Israel some good news and Finance Minister Moshe Kahlon bad news.

After two months of declines, the consumer price index rose 0.3% month on month in August. Although that leaves inflation for the last 12 months at a negative 0.1%, the CPI is turning in the right direction as far as the central bank is concerned: toward the government’s goal of 1% to 3% annual inflation.

The reason prices turned higher, however, was the housing price index, which climbed 0.4% from mid-June to mid-July, versus the previous 30 days. Discounting housing, the overall CPI fell 0.6% in August.

Kahlon has made bringing down, or at least stabilizing, home prices, his top agenda item. He showed some success in the final quarter of 2016, when they registered a 0.6% decline, But the decline quickly reversed. In the first half of this year, housing prices rose 2.1%, without a single monthly decline.

The monthly rises have not been big — none has exceeded 0.5%, and year-on-year prices are up a relatively modest 4.4% — but that is not what Kahlon has been aiming for.

The housing market has shown signs of cooling off, evidenced by a 15% drop in the second quarter in home sales from the same time in 2016, according to figures from the Finance Ministry’s chief economist.

The decline in home sales has been under way for several quarters, and treasury officials had hoped that it would be followed by lower prices, but so far that hasn’t happened.