Israel: The economy gains pace in the first quarter, although temporary factors flatter the headline reading
May 16, 2019
The economy expanded 5.2% in quarter-on-quarter seasonally adjusted annualized rate (qoq SAAR) terms. The reading was considerably up from Q4’s revised 3.9% expansion (previously reported: +3.1% SAAR), although this was partly due to a surge in vehicle purchases ahead of imminent tax changes, which led to higher import tax revenue. Excluding net taxes on imports, GDP rose a more moderate—but still healthy—3.7% SAAR.
Private consumption was up 7.6% SAAR (Q4: +7.2% SAAR), partly on vehicles sales, but also likely supported by muted price pressures and a strong labor market. Fixed investment rose 10.0% (Q4: +14.2%) on greater investment in vehicles, while residential building investment declined. Government consumption rose a modest 1.2%, up from Q4’s flat reading.
On the external front, exports of goods and services bounced back (Q1: +6.2%; Q4: -4.8%), reflecting higher tourism and manufactured goods receipts. Import growth ebbed from 12.2% in Q4 to 6.7% in Q1. As a result, the external sector contracted only 0.2 percentage points from growth, down from the 5.1 percentage-point contraction in Q4.
Looking ahead, growth should be solid, albeit below Q1’s scorching pace. Low unemployment and robust wage growth should underpin private consumption. Meanwhile, fixed investment should benefit from greater policy certainty following the elections and work on the Leviathan gas field, and high-tech service exports should expand healthily.
Author: Oliver Reynolds, Economist