Israel: GDP growth jumps in Q3 on strong consumption and investment
November 16, 2017
The economy continued heating up in Q3, with GDP growth accelerating to a seasonally-adjusted annualized rate (SAAR) of 4.1%, from an upwardly revised 2.5% in Q2 (previously reported: +2.4% SAAR). A first estimate released by the Central Bureau of Statistics (CBS) showed that Q3’s acceleration was driven largely by gains in consumer spending, fixed investment, and a surge in exports. The reading handily beat market analysts’ expectation of a more modest 2.5% expansion. Ahead of the data release, the Bank of Israel trimmed its full-year growth forecast for 2017 to 3.1% from 3.4%, while maintaining next year’s forecast at 3.3%.
Domestically, household spending rose 7.8% (Q2: +6.1% SAAR) and likely benefitted from the tight labor market and low inflation, posting the strongest quarter of growth in more than a year. Moreover, fixed investment performed robustly despite slowing from a quarter earlier. It increased 8.1% (Q2: +11.1% SAAR), in line with strong business confidence earlier this year. On the other hand, government spending fell 1.6%, contrasting a moderate increase a quarter earlier (Q2: +2.5% SAAR).
In the external sector, a stunning rebound in exports helped propel growth. Exports—which account for nearly a third of economic activity—grew at a multi-year high 18.5% in Q3, contrasting a sharp decline a quarter earlier (Q2: -7.0% SAAR). That said, export growth excluding diamonds and startup companies was far less impressive, coming in near zero. Imports accelerated from a quarter earlier and rose a notable 16.6% (Q2: +6.3% SAAR).
On an annual basis, GDP growth nearly halved in Q3 from a quarter earlier, falling to 2.1% (Q2: +4.0% year-on-year) on a substantial base effect.
Heading into the end of the year, annual GDP growth is expected to accelerate as the tight labor market continues to support rapid growth in household spending, and upbeat business confidence pushes firms to increase fixed investment. A second estimate of national accounts for Q3 will be released on 31 December.
Author: Christopher Thomas, Economist