Israel: Economic growth weakens in Q3
November 16, 2021
GDP growth waned to 2.4% in seasonally-adjusted annualized rate terms (SAAR) in the third quarter, from 13.7% in the second quarter. However, stripping out the effect of net taxes on imports, growth was slightly healthier at 3.5%.
Household spending increased 0.7% in the third quarter, which was well below the second quarter's 33.5% expansion. The sharp slowdown was influenced in part by lower car imports amid supply chain difficulties, although a surge in Covid-19 infections and some tightening of domestic restrictions likely also played a role. Public spending dropped 2.3% in Q3 (Q2: +1.3% SAAR). Meanwhile, fixed investment growth accelerated to 14.8% in Q3, from the 5.6% expansion recorded in the previous quarter.
Exports of goods and services increased 7.5% on a SAAR basis in the third quarter, which was below the second quarter's 15.5% expansion. In addition, growth in imports of goods and services slowed to 2.7% in Q3 (Q2: +9.1% SAAR).
On an annual basis, economic growth waned markedly to 4.1% in Q3, compared to the previous period's 16.9% increase.
The economy should be robust in the final quarter of the year, supported by the strong booster vaccination campaign which has successfully tamed new infections, while the recent approval of the 2022 budget bodes well for business sentiment.
On Q4, analysts at Goldman Sachs commented:
“We expect the GDP growth rate in Q4 to pick up as the slowdown in Q3 was largely due to idiosyncratic factors and for the economy to grow close to its potential rate in 2022 (3.5% in annualized terms, on our estimates). Nevertheless, we mechanically revise down our GDP growth forecast for 2021 from 7.0% year-on-year to 6.5% year-on-year, following today’s downside surprise.”
Regarding the budget approval, analysts at Fitch Ratings said:
Public finance risks have eased with the adoption of the budgets […] although we view the budget outcome for 2022 as still vulnerable to fiscal slippage, particularly if the economy were to experience another shock, for example due to global supply-chain disruptions or higher energy prices. The Knesset also approved the Arrangements Law for 2021 and 2022, the economic policy plan of the government. The Law contains many structural reform initiatives. Among other things, it raises the pension age for women, eases trade and import barriers, advances deregulation, and encompasses measures to facilitate the economy’s transition to using renewable energy sources.”
Author: Oliver Reynolds, Economist