Israel: Growth slows down in Q1
May 16, 2017
Israel’s economy hit the brakes in Q1, mainly due to unfavorable base effects after a strong final quarter of 2016. In Q1 2017, GDP increased 1.4% over the previous quarter in seasonally adjusted annualized terms (saar), the slowest expansion seen since Q2 2015. The preliminary estimate published by the Central Bureau of Statistics (CBS) was substantially below the 4.7% expansion registered in the fourth quarter of 2016 and undershot market analysts’ expectations of 3.7% growth.
Private consumption contracted in the first quarter, (Q1: -1.6% saar; Q4: +1.1% saar), due to a massive drop in the consumption of durable goods. In anticipation of an environmental tax on cars which came into force at the start of 2017, household expenditure surged last year as consumers rushed to buy vehicles, and the introduction of the tax explains the large decline in private consumption observed in the first quarter of 2017. In addition, fixed investment dropped 5.6% in Q1, after growing 1.8% in Q4. Behind the contraction was the end of large investment projects undertaken by the tech giant Intel in 2016.
Looking at the external sector, imports declined 8.9% in the first quarter, after rising 1.6% in Q4. Imports were given a boost last year by the expected tax hike on cars. In contrast, exports were a bright spot, growing 10.6% in Q1 and recording the second consecutive quarter of double-digit expansion, despite a strong shekel (Q4: +11.7% saar).
In annual terms, GDP expanded 4.0% in Q1, which was down from the 4.3% expansion reported in the fourth quarter of the previous year.
This year, the economy is expected to slow down as one-off effects dissipate. However, domestic demand will continue to grow at a solid pace, supported by robust private consumption thanks to a tight labor market, while soaring business confidence should translate into healthy fixed investment growth. Although exports are foreseen to rebound on the back of rising global trade volumes, strong imports will weigh on the external sector’s net contribution to the economy.
