Statistics Bureau Sees Paltry 2% Growth in 2014

Bank of Israel holds base lending rate unchanged, reiterates 2015 forecast of 3% growth,

Dror Raich
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Intel's Kiryat Gat semiconductor plant.
Intel's Kiryat Gat semiconductor plant.Credit: Intel Israel
Dror Raich

Israel’s economy will grow just 2% in 2014, its slowest pace in five years and well below other forecasts, the Central Bureau of Statistics said Monday.

The outlook came hours before the Bank of Israel released its latest forecast for this year’s economic growth, which it revised down to 2.3% from the 2.9% it projected in June. In a report released Monday, Israel Discount Bank said growth would reach 2.4% this year, the same as the Finance Ministry estimated last week, when it cut its 2014 growth estimate from 2.9%.

The downgrades came as the Bank of Israel said Monday it would hold its base lending rate unchanged at a record low of 0.25%, following two straight reductions in July and August. Economists said the decision reflected a wait-and-see posture.

“The Bank of Israel is taking a certain time-out to wait and see what impact its recent actions have before taking more dramatic steps such as a zero-interest rate and quantitative easing,” said Ilan Artzi, chief investment officer at Halman-Aldubi Investment House.

Gross domestic product, which expanded between 3% and 5.8% in the four years through 2013, began slowing earlier this year and took another blow during the 50-day Israel-Gaza war over the summer. The war, particular its impact on tourism, has been the main factor behind the latest round in economic growth downgrades.

Officials at the Central Bureau of Statistics declined to give an estimate Monday. “There was an impact, and we see that in imports and in tourism,” said Oz Shimony, senior director of the statistics bureau’s macroeconomics.

The bureau said its initial estimate is based on six to eight months of data. It said it expected no growth in the third quarter, while the fighting raged. “No one knows what will be in the fourth quarter,” Shimony said. “We expect there will be growth, but we don’t know how much.”

Exports, led by agriculture and accounting for about 40% of Israel’s economic activity, look to decline 0.5% this year after a slight gain in 2013, the bureau said. Consumer spending, another key growth driver, is projected to grow 3.3% for a second straight year.

Public spending eased slightly to a growth of 3.1%, while investment in fixed assets is forecast to dip 1.1%, the bureau said.

The gloom of 2014, however, is expected to clear in 2015. The Bank of Israel reiterated its 2015 forecast of 3% growth, while Discount Bank said it would reach 3.3%, returning to its 2013 level.

Discount pointed to a recovery in the world economy, a weakening of the shekel that would help imports, and a big rise in capital spending as Intel begins work on upgrading its Kiryat Gat semiconductor plant and the Leviathan natural gas field is developed.

Low interest rates and a strong labor market should help revive consumer spending, Discount said. “In our view, a recovery in consumer spending will be relatively quick, while the tourism sector will return to its pre-crisis level in the second quarter of 2015,” the bank said.

Reuters contributed to this report.