Israel: Economic growth cools in the second quarter on weak demand dynamics
Preliminary data released by the Central Bureau of Statistics (CBS) on 16 August showed that the Israeli economy lost significant steam in the second quarter, due to a weakening of demand. Economic growth came in at 2.0% quarter-on-quarter, at a seasonally-adjusted annualized rate (SAAR). The result is markedly down from the first quarter’s upwardly revised 4.8% expansion (previously reported: 4.7% quarter-on-quarter SAAR) and below market expectations of a slightly softer deceleration to 2.4%.
After growing at an impressive 9.6% qoq SAAR in the first quarter, household expenditure expanded a meagre 0.5% in the second quarter. This is likely reflective of the large base effect, given that a surge in automobile sales had buttressed private consumption growth in the first quarter. In the second quarter there was a marked contraction in household expenditure on durable goods, although consumption of semi-durable goods remained robust. Government expenditure swung from a 12.1% qoq SAAR increase in the first quarter to a 5.2% contraction in the second quarter, while fixed investment also contracted sharply after growing robustly in the first quarter (Q2: -6.6% qoq SAAR; Q1: +3.7% qoq SAAR). The drop in investment growth was broad-based with both residential building investment and industrial investment contracting.
On the external front, exports contracted 0.1% over the previous quarter in the April–June period (Q1: +2.2% qoq SAAR), while growth of imports slowed markedly as domestic demand eased (Q2: +1.2% qoq SAAR; Q1: +19.0% qoq SAAR).
On an annual basis, the slowdown in economic activity was less marked. In the second quarter, the economy grew 3.8% over the same period a year ago, which is down from the upwardly revised 4.2% year-on-year growth rate observed in the first quarter (previously reported: +4.1% year-on-year).
Looking ahead, economic growth is expected to remain robust in the quarters ahead, and growth for this year as a whole is expected to pick up pace from last year. However, rising inflation will likely eat into consumers’ purchasing power going forward. Moreover, risks are tilted to the downside as the lingering uncertainty regarding trade relations between the United States and China, as well as the European Union, could spill over and dampen economic activity in Israel.