Israel: GDP records largest fall on record in Q2, only mild recovery expected for Q3
August 16, 2020
GDP contracted at a quicker pace of 28.7% in seasonally-adjusted annualized terms (SAAR) in the second quarter, below the 6.8% contraction logged in the first quarter and marking the worst reading on record.
On the domestic front, the downturn reflected contractions in private consumption and fixed investment. Private consumption declined at a steeper pace of 43.4% SAAR in Q2 from the 24.0% fall in Q1, due to the strict lockdown. Fixed investment fell at a sharper rate of 31.6% in Q2, from the 19.3% contraction recorded in the prior quarter. Public spending, meanwhile, grew at the fastest pace ever recorded, expanding 25.2% (Q1: -12.5% SAAR) as the government implemented fiscal stimulus measures.
Exports of goods and services contracted 29.2% in Q2 (Q1: +5.7% SAAR). In addition, imports of goods and services shrank at a more pronounced pace of 41.7% in Q2 (Q1: -22.4% SAAR).
On an annual basis, economic activity fell 6.7% in Q2, contrasting the previous quarter's 0.3% expansion.
Looking forward, while economic activity will recover somewhat in H2, the rebound will be hampered by elevated new Covid-19 cases, which led to the snap-back of some restrictions in July and risk further lockdown measures ahead. Economic activity in July only expanded meekly according to the Composite State of the Economy Index, following five consecutive months of contraction.
According to Padmasai Varanasi, an economist at Oxford Economics:
“We have lowered our 2020 GDP forecast for Israel to -7.0% (from -6.0% last month) owing to the imposition of partial lockdowns as coronavirus infections have surged. All components of GDP except government consumption have been hit sharply by the outbreak, and earlier assumptions of a gradual recovery from Q3 2020 are pushed further out.”
Author: Oliver Reynolds, Economist