Israel: Economy loses steam in the fourth quarter, but still records growth
February 16, 2021
Activity softened in the fourth quarter, with GDP expanding 6.3% in seasonally-adjusted annualized rate terms (Q3: +41.5% SAAR). However, the economy performed fairly well relative to other developed economies in the period, and shrank a mere 2.3% over 2020 as a whole (2019: +3.4% year-on-year). Resilience in Q4 was likely due to firms being better adapted to restrictions and more able to shift their activity online, as well as citizens’ reduced compliance with measures.
Private consumption increased 18.2% in the fourth quarter, which was below the third quarter's 42.2% expansion, likely weighed on by the second lockdown early in the quarter. Government spending grew at the fastest rate on record, expanding 26.0% (Q3: +8.5% SAAR). Meanwhile, fixed investment growth improved to 66.1% in Q4, up from the 17.4% expansion in the prior quarter and driven by surging industrial investment.
Exports of goods and services fell 4.9% on a SAAR basis in the fourth quarter, which contrasted the third quarter's 67.6% expansion. Conversely, imports of goods and services bounced back, growing 88.5% in Q4 (Q3: -1.3% SAAR). The reading was driven by surging car imports amid frontloading ahead of tax hikes at the start of 2021.
On an annual basis, GDP declined 1.3% in Q4, down from the previous quarter's 1.2% decrease.
Looking ahead, activity in the early part of Q1 will likely be held back by the third lockdown. However, the country’s record-beating vaccination pace has allowed a relaxation of restrictions from early February, which, coupled with recoveries abroad, should spur momentum through the rest of the year.
According to analysts at Goldman Sachs:
“We think that GDP growth will be exceptionally strong in 2021. After stalling for roughly two weeks due to reduced demand, the vaccination campaign is once again gaining speed after the authorities signaled that various restrictions will be lifted for those who have been vaccinated or those who have negative Covid-19 tests taken in the last 48 hours. We think that this will enable a relatively quick opening up of the economy, providing a burst to growth. The base effects also remain supportive for a high growth figure. Following the upside surprise today, we expect GDP growth to be +7.5%yoy in 2021.”
Author: Oliver Reynolds, Economist