Israel: Growth slows sharply in Q2 after temporary factors boosted the Q1 reading
August 18, 2019
The economy expanded 1.0% in quarter-on-quarter seasonally adjusted annualized rate (qoq SAAR) terms in the second quarter. The reading was thus considerably down from Q1’s revised 4.7% expansion (previously reported: +5.0% qoq SAAR); however, excluding net taxes on imports—which have distorted GDP data so far this year due to a frontloading of vehicle purchases in the first quarter—underlying momentum was fairly stable (Q2: +3.1% qoq SAAR; Q1: +3.2% qoq SAAR).
Private consumption was down 1.3% SAAR (Q1: +5.8%) on lower consumption of durable goods, likely linked to lower car purchases. Fixed investment also fell (Q2: -3.1%; Q1: +10.2%), again likely due in part to volatility in vehicle imports. Government spending growth, conversely, shot up (Q2: +10.0%; Q1: +0.1%).
On the external front, exports of goods and services plunged (Q2: -2.8%; Q1: +9.9%), while imports were up 2.0% (Q1: +5.7%). As a result, the external sector subtracted 1.4 percentage points from growth, contrasting the 1.2 percentage-point contribution in Q1.
Looking ahead, growth should be solid, supported by healthy domestic demand and a tight labor market. Moreover, the start of operations at the Leviathan gas field at the end of 2019 will boost the external sector.
Author: Oliver Reynolds, Economist