Israel: Economy accelerates in Q2 as private consumption surges
August 16, 2016
In Q2 2016, GDP increased 3.7% over the previous quarter in seasonally adjusted annualized terms (SAAR). The expansion was well above the revised 2.2% increase seen in the first quarter (previously reported: 0.3% SAAR) and market projections of 2.1% growth. Q2’s acceleration came on the back of strong private consumption and a remarkable rebound in government consumption.
In the second quarter, growth in private consumption accelerated from a 6.2% increase in Q1 to a 9.5% rise, which was the highest growth seen in nine years. Moreover, government consumption swung from a 1.8% decrease in the first quarter to an 8.7% increase in Q2. Conversely, growth in fixed investment decelerated from 17.4% in Q1 to 4.1% in Q2.
Dr. Gil Michael Bufman, Chief Economist at Leumi Bank elaborated:
“we emphasize that private consumption (which accounts for 60% of GDP) continues to be the primary, stable growth driver of the economy; […] In the first half of the year all the components of private consumption experienced accelerated growth. This was led by durable goods (which are for the most part import intensive), while at the same time there was a sharp increase in vehicle purchases. […] Private consumption growth (C) has been strong over the last few years, at about 4% per year since 2013, and part of this is due to the fact that Israel's population growth is about 2%. So in per capita terms, the increase in C is not that great, at about 2% per year, which is well within the long term average range. Our forecast for C in 2016 is +4.3% and in 2017 +3.9% -- so it remains in the 4% range.”
On the external front, exports of goods and services expanded 3.8% in Q2, which was a slowdown from the 6.6% increase observed in the previous quarter. Growth in imports jumped from a 2.9% expansion in the first quarter to a 22.1% surge in the second quarter. As a result, the external sector’s net contribution to overall economic growth deteriorated significantly from plus 1.2 percentage points in Q1 to minus 6.0 percentage points in Q2 of this year.
In annual terms, GDP expanded 2.7% in Q2, which was up from the 2.0% expansion reported in first quarter.