Israel: GDP growth remains solid in the first quarter
GDP growth slowed to 2.5% in seasonally adjusted annualized rate terms (SAAR) in the first quarter, from 5.3% in the fourth quarter of last year. As such, activity remained resilient in the face of higher interest rates and the fallout from the government’s proposed judicial reform. Strong population growth and a solid labor market likely aided the economy.
Private consumption contracted 1.7% in Q1, marking the worst result since Q2 2020 (Q4 2022: +10.2% SAAR). However, the reading was depressed by a pullback in vehicle purchases; car sales had surged in Q4 as consumers frontloaded purchases ahead of a vehicle tax increase from January. Fluctuations in vehicle sales have historically introduced significant volatility into Israel’s national accounts data. Government consumption expanded 1.8% (Q4 2022: +2.7% SAAR). Meanwhile, fixed investment bounced back, growing 14.7% in Q1, contrasting the 0.9% decrease logged in the previous quarter.
Exports of goods and services fell at a softer pace of 3.5% in Q1 (Q4 2022: -8.5% SAAR). In addition, imports of goods and services dropped at a softer pace of 5.8% in Q1 (Q4 2022: -7.0% SAAR).
On an annual basis, economic growth improved to 3.5% in Q1, following the previous quarter’s 2.7% increase.
Looking forward, the Consensus is for an ongoing economic expansion in Q2. On the reading and outlook, Goldman Sachs analysts said:
“Following today’s upside surprise to our forecast, we mechanically raise our full-year 2023 growth forecast by 0.3pp to +3.4%, which is broadly in line with our view of Israel’s potential growth (+3.5%). More broadly, we see today’s release as consistent with high-frequency indicators, which suggests that the trough in activity was recorded around the turn of the year and that the economy is now growing close to potential.”