Israel: Economy loses notable momentum in the fourth quarter
GDP reading: GDP growth moderated to 2.5% in seasonally adjusted annualized rate terms (SAAR) in the final quarter of 2024 from 5.3% in the third quarter, below market expectations. As such, the economy remained smaller than before the start of war with Hamas in late 2023. Moreover, though GDP rose slightly over 2024 as a whole, the increase was far below historical rates, and GDP per capita actually shrank last year.
Softer investment growth leads slowdown: Private consumption growth improved to 9.5% SAAR in Q4 compared to a 8.9% expansion in Q3. Government consumption bounced back, growing 7.6% in Q4 (Q3: -3.3% SAAR). In contrast, fixed investment growth slowed to 14.7% in Q4, following the 29.2% increase recorded in the previous quarter.
On the external front, exports of goods and services growth hit an over two-year high of 6.2% in the fourth quarter, up from the third quarter’s 3.6%. In addition, imports of goods and services growth picked up to 17.2% in Q4 (Q3: +15.7% SAAR).
GDP outlook: Economic growth should accelerate slightly in Q1, buoyed by the recent ceasefire agreements with Hamas and Hezbollah.
Panelist insight: Digging deeper into the latest data, Goldman Sachs analysts said:
“According to the seasonally adjusted quarterly data, Israeli growth remains -0.7% below its Q3-2023 (pre-October 7th) level, but there is a significant divergence across the components of GDP. Household consumption is +5.6% higher than in Q3-2023 and (civilian) government consumption is +10.6% higher. Strong household and government consumption is being offset by contracting investment, especially in construction – which remains 20.2% below its pre-October 7 level. Construction spending has been held back by a combination of the uncertainty created by the conflict and a large labour supply constraint that has particularly affected the construction sector (owing to Israel’s labour force losing access to citizens on active military duty and non-resident workers from Gaza and the West Bank).”