Israel: Activity bounces back in Q2 as restrictions are eased
Economic activity bounced back in the second quarter, expanding 15.4% in seasonally-adjusted annualized rate terms (SAAR), contrasting the 1.4% contraction seen in the first quarter. The reading was partly flattered by net taxes on imports, although underlying momentum still appeared robust, with activity aided by looser restrictions and the rapid vaccine rollout. Moreover, the negative impact of the conflict with Palestine appeared to be fairly mild.
The upturn reflected improvements in private consumption, public spending and fixed investment. Private consumption increased 36.3% in the second quarter, which was above the first quarter’s flat reading. Public consumption rebounded in Q2, rising 4.0% (Q1: -11.1% SAAR), while fixed investment also recovered, growing 9.7% and contrasting the 10.3% contraction recorded in the previous quarter.
On the external front, exports of goods and services increased 18.1% on a SAAR basis in the second quarter, which was just above the first quarter’s 18.0% expansion. In addition, growth in imports of goods and services picked up to 15.8% in Q2 (Q1: +15.3% SAAR).
On an annual basis, the economy bounced back in Q2, with GDP increasing 17.0% and contrasting the previous period’s 0.6% fall.
Both sequential and year-on-year growth rates should ease in H2, as pent-up demand subsides and the recent surge in Covid-19 cases and tightening of restrictions likely take the edge off activity.
On the Q2 reading and outlook, analysts at Goldman Sachs commented:
“We expect sequential growth to moderate from its very elevated level in Q2 due to several factors: (1) The high rate of GDP growth in Q2 was driven by the opening up effect—our Effective Lockdown Index showed the largest easing in restrictions since the beginning of last year in Q2 2021. (2) With the surge in new Covid cases, there may be a slowdown in overall activity, though the high vaccination rate is likely to limit the impact of this. (3) Some slowdown in external demand can also feed into a slowdown locally. Despite the above, the upside surprise to Q2 GDP and more so the upward revision to Q1 GDP mechanically imply a significantly higher growth rate for the whole year. As a result, we are revising our 2021 GDP growth forecast from +5.0% yoy to +6.5% yoy.”