The Central Bureau of Statistics on Thursday revised its figure for first-quarter economic growth sharply higher, alleviating some of the stress that treasury and Bank of Israel policymakers have been experiencing amid concerns Israel might be sliding into a recession.
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The CBS said the economy expanded at a 1.3% annual rate in the first quarter, up from its preliminary estimate made a month ago of 0.8%. In addition, the CBS revised fourth-quarter GDP growth by 0.3 percentage point to 3.4%.
The 1.3% rate is still low by recent standards and well below the economy’s potential rate of growth. Business sector GDP slowed to a 0.2% rate, half of the previous estimate, the CBS said.
However, most component figures to the GDP pointed to a stronger performance. Consumer spending rose at a 4.8% clip in the three months, up from a previous estimate of 4%. Exports of goods and services – right now the economy’s weakest component – were down a sharp 8% annual rate in the quarter, but the decline was much smaller than the 12% the CBS had previous estimated.
The level of investments was revised up sharply to a 16.2% annual rate from a previous 7.5% rate. While investment in residential construction, which Finance Minister Moshe Kahlon is pushing for to alleviate soaring housing prices, grew at a 9.1% annual pace, up from a previous 8.4% estimate. But investment in machinery and equipment fell at a 3.9% rate, faster than the CBS had previously reported.
The revised figures come amid concerns about Israel’s export performance, the traditional generator of economic growth. While growth has been sustained by consumer spending, economists say it can’t continue indefinitely and that if exports don’t revive, the economy will slow.
This week, however, a treasury analysis of exports found that the problem isn’t due to economic fundamentals, such as a strong shekel. Instead it pointed a finger at three industries – pharmaceuticals, chemicals and electronic components, which have suffered downturns for industry-specific reasons.
For instance, exports of electronic components is dominated by Intel Israel, whose Kiryat Gat plant is now undergoing an upgrade, reducing production.
The CBS also reported on Thursday that Israel’s current account surplus widened in the first quarter to $3.32 billion, up from $3.04 billion a year earlier. Israel’s merchandise trade deficit widened to $1.5 billion from $995 million but its surplus in service trade climbed to $3.94 billion from $3 billion a year earlier. Direct foreign investment reached $2.95 billion, up from $1.15 billion in the fourth quarter of 2015, it said.
The economy is forecast to grow about 2.8% in 2016 after a 2.5 percent pace last year. The Bank of Israel has expressed concerns over weak exports although it has held its benchmark interest rate at 0.1% for more than a year, with expectations of steady rate policy into 2017. Minutes of the most recent rates decision last month showed that policymakers attributed a major part of the weakness in the first quarter to specific shocks to main industries, while slowing global trade and a strong shekel were also weighing on exports.
With reporting by Reuters.