Only 3.9% After All

Israel's gross domestic product increased by only 3.9% in 2008, well below estimates touted not long ago. For instance, just two months ago the Central Bureau of Statistics was predicting that Israel's GDP would prove to have increased by 4.4% in 2008.

Broken down into half-years, a stark picture emerges: Second-half growth was only 1.1% (in annualized terms), compared with 4.8% in the first half-year.

In fact, the economy slithered toward recession in the fourth quarter of 2008. GDP contracted by 0.5%, compared with growth of nearly 1 percent in the previous quarter and 3.2% in the second quarter. First-quarter growth had been a robust 4.6% (all figures are in annualized terms).

The slowdown in the last six months of the year was worse that the Central Bureau of Statistics had expected.

Practically all the components of the economy did worse in the last half-year. The business product did continue to grow - by 0.8%, compared with 5.7% in the first half-year.

Export of goods and services plunged, falling nearly 16% in the second half of the year. (However, if exports from the sorely hurting diamond industry and startups are deducted, exports fell by a more bearable 6.6% in the second half.)

The true gauge of lifestyle is private consumption, and that fell by nearly 3% in the last six months of 2008. In the last quarter, private consumption retreated by 5.4%.

Consumers are worried, including people with jobs. Their impaired confidence was keenly felt by the durable goods sector, which includes significant purchases such as refrigerators and washing machines. Sales of durables wilted, falling by 28% in the second half of 2008. If the old machine still limps along, it wasn't replaced. Purchases of cars by households fell by well over 50%, yet another indication that people are feeling the strain.