Quarterly Economic Growth Beats Analysts' Expectations

GDP growth falls to 3.8% in third quarter from 4.5% in Q2

The Israeli economy continued to grow at a good clip in the third quarter, despite analysts' concerns.

The gross domestic product increased by 3.8% in annualized terms, according to preliminary data released yesterday by the Central Bureau of Statistics.

The growth came despite a sharp drop in exports of goods and services - 9.6%, also in annualized terms.

Over the past five quarters, the Israeli economy has grown by an average pace of 4% in annualized terms (meaning that growth would be 4% if it maintained this pace for a year; all the quarterly figures in this article are annualized ).

Growth was 4.5% in the second quarter, while in the first quarter it was 3.8%. Major factors fueling third-quarter GDP growth included public sector consumption and investment in fixed assets.

However, there was a moderate increase in private consumption and a sharp drop in exports of goods and services. In the previous quarters, it was these factors that boosted GDP growth. Private consumption is a reflection of the citizens' standard of living, and although it rose by 1.3% in the third quarter, the population increased by 1.8% over that period, meaning that on a per capita basis, consumption actually fell by 0.5%.

Data gathered over longer periods of time are considered more indicative than quarterly figures. Exports in the second quarter had grown sharply, by 13.9%, before dropping in the third quarter by 9.6%.

Almost half of Israeli production is for export, but exports are dependent upon the global economy, and overseas economic activity cooled in the third quarter. If world trade picks up in the fourth quarter, Israeli exports will pick up, too. What happens in the United States that is of particular relevance, since a third of Israeli exports and most of the high-tech exports are sold to American consumers.

"I was not surprised by the growth figures for the third quarter," said Eldad Shidlovsky, who heads the Finance Ministry's economics and research division. He said to reach the ministry's 3.6% growth projection for 2010 as a whole, fourth-quarter growth would have to be 3.5%, which he says is achievable. He said what actually surprised ministry economists was the quarterly drop in imports, which offset some of the drop in exports.

Shidlovsky said the latest quarterly results show the Israeli economy is growing more than other developed economies around the world, noting that the comparable figure from the U.S. was 2%, and for the euro zone, only 1.6%.