Israel: Q1 deceleration in GDP confirmed
June 19, 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 (Q4: +4.7% SAAR). The revised numbers published by the Central Bureau of Statistics (CBS) matched the preliminary estimate from 16 May.
Private consumption contracted 1.7% in the first quarter (previously reported: -1.6% SAAR, Q4: +1.1% SAAR), due to a large 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, the drop in fixed investment was revised from 5.6% in the first estimate to a decline of 3.1% in Q1, after growing 3.1% 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 9.3% in the first quarter (previously reported: -8.9% SAAR), after rising 1.4% in Q4. The expected tax hike on cars gave imports a boost last year. In contrast, exports were a bright spot, growing 7.8% in Q1 (previously reported: +10.6% SAAR), though this did mark a slowdown from Q4’s 10.4% surge.
In annual terms, GDP expanded 4.0% in Q1, which was down from the 4.3% expansion reported in the fourth quarter of last 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 expected to rebound on the back of rising global trade volumes, strong imports will weigh on the external sector’s net contribution to the economy.