Could the Recession Be Over?

Not only does the recession in Israel seem to be over sooner than expected, it's ending sooner than anywhere else in the developed world, according to figures released yesterday by the Central Bureau of Statistics.

Israel's gross domestic product increased by 1% in the second quarter of 2009, the bureau said, in annualized terms, after dropping 3.2% in the first quarter and 1.4% in the last quarter of 2008.

Recession is widely, if informally, defined as at least two consecutive quarters of economic contraction. By that criterion, here at least, after just six months, the recession is over.

"The growth in the second quarter is another encouraging sign on a list of positive signs in recent weeks, indicating that the economy has stabilized," commented Finance Minister Yuval Steinitz. But while saying that the government's economic plan and two-year budget should lead to sustained growth, he added that it's too soon to say that the crisis and recession are over.

"We expect unemployment figures may increase some more. Creating jobs is at the top of our priority list. The decline in investment in fixed assets continues, which could weigh on growth over the long run," Steinitz said.

That said, economic experts were taken aback by the figures. Earlier this year the Finance Ministry predicted that Israel's economy would contract by 1.5% in 2009 and shift to growth only in 2010, but miserly growth of just 1%.

Obedient to the bearish bent on world markets, Tel Aviv equities fell yesterday, however. Large-caps lost more than 2%, and real estate stocks fell by more than 3%.

However, in per capita terms - factoring in population growth - growth remained a negative 0.7%. Also, if seen over the first six months of 2009, Israel's GDP contracted by 1.7%, after achieving moderate growth of 0.9% in the second half of 2008 and rising sharply, by 5.2%, in the first six months of last year. (All the figures are annualized.)

Indeed the figures from the Central Bureau of Statistics yesterday were encouraging, but they're based on preliminary estimates for the second quarter, and the achievement may prove ephemeral. The figures may be adjusted, as usual, and there's no telling whether trends have truly changed yet.

Meanwhile, expenditure for private consumption, for instance on cars and fridges, increased by 4.4% in the second quarter, after a 3.9% drop in the first.

Consumption of durables, such as furniture, shot up by 19% in the second quarter after dropping 39.5% in the first. Expenditure for public consumption jumped 20.2% in the last quarter, following a 5.6% drop in the first quarter.

Michael Sarel, chief economist at the Harel insurance group, commented that the figures were a happy surprise. "But remember that 1% growth means negative growth per capita, which leads to job losses," he said. "It's too soon to say that the recession is over."

Ron Eichel, chief economist at Meitav, agrees: "We have to see growth of at least 3% before the jobs market will start to improve," he says.