Israel: Economy grows at fastest pace on record in Q3
November 16, 2020
Economic activity rebounded in the third quarter, with GDP expanding 37.9% in seasonally-adjusted annualized terms (SAAR), contrasting the 29.8% contraction logged in the second quarter and significantly outpacing market expectations. Q3’s reading was a reflection of social distancing restrictions being generally looser than in Q2, although the second lockdown imposed in mid-September likely hurt momentum towards the end of the period. Moreover, the Statistical Institute emphasized difficulties in estimating GDP due to the Covid-19 crisis, and cautioned that future revisions to the data could be larger than normal.
The upturn reflected recoveries in private consumption, fixed investment and exports. Household spending grew 42.0% SAAR in Q3 compared to a 43.7% contraction in Q2. Public consumption growth softened to 5.1% in Q3 (Q2: +22.7% SAAR), likely as stimulus measures ebbed. Fixed capital formation expanded 7.3% in Q3: While contrasting the 34.9% decrease logged in the previous quarter, this was still a soft reading, with pervasive uncertainty likely causing firms to delay investment decisions.
Exports of goods and services surged 63.9% SAAR in the third quarter, which contrasted the second quarter's 28.5% contraction. In addition, imports of goods and services dropped at a more moderate rate of 6.0% in Q3 (Q2: -40.1% SAAR).
On an annual basis, GDP declined 1.9% in Q3, which was up from Q2’s 7.1% decrease.
Looking ahead, activity in Q4 will likely take a hit from the second lockdown. However, the eventual arrival of a vaccine should support confidence and activity both domestically and globally in 2021, while the recent improvement in relations with several Arab neighbors, including the UAE, also bodes well.
According to analysts at Goldman Sachs:
“We […] now see growth at +4.5%yoy in 2021 (previously +5.5%yoy) as base effects are less favourable. This is despite another sharp sequential decline in GDP in Q4 following the second nationwide lockdown. We think that the recovery in 2021Q1 may not be as rapid as in 2020Q3 since the restrictions are being lifted more gradually this time around. Nevertheless, we continue to think that growth will be running at an elevated level in 2021, as the economy reopens up in H1 and as we expect the rollout of vaccination programmes to provide a positive global backdrop in H2.”
Author: Oliver Reynolds, Economist