GDP records fastest upturn since Q4 2021 in Q1

GDP bounced back in Q1, expanding 14.1% in seasonally adjusted annualized rate terms (SAAR), contrasting the 21.7% contraction tallied in the fourth quarter of last year. Q1's reading marked an over two-year high, but was slightly below market expectations and meant that the economy is still smaller than it was before the war with Hamas erupted in October 2023. On an annual basis, GDP declined 0.6% in Q1, following the previous period's 4.7% fall.

The upturn reflected improvements in private consumption and fixed investment compared to the previous period. Private consumption growth hit an over two-year high of 26.3% in the first quarter (Q4 2023: -27.2% SAAR). Government spending growth waned to 7.1% in Q1 (Q4 2023: +86.3% SAAR). Fixed investment rebounded, growing 49.2% in Q1, contrasting the 68.8% contraction in the previous quarter. On the external front, exports of goods and services fell at a softer pace of 11.0% in Q1 (Q4 2023: -21.7% SAAR). In addition, imports of goods and services bounced back, growing 32.7% in Q1 (Q4 2023: -33.2% SAAR), marking the best reading since Q4 2020.

The outlook hinges on the evolution of the conflict with Hamas. For now, our Consensus is for the economy to grow further in Q2, albeit at a much slower rate than in Q1, as activity gradually normalizes following the steep contraction at the end of last year. That said, any broadening of the conflict—for example, if fighting with Hezbollah intensifies—could throw the economic recovery off course.

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