November 16, 2016

Bottom line: Higher growth — and healthier, too!

The latest GDP data confirm that the Israeli economy is growing at a rate of some 3-3.5% per annum, higher than expected and much better than had seemed likely earlier this year. There are two key points to note: 1) estimates of growth in both the first and second quarters have been repeatedly revised upwards; 2) the composition of growth has become much healthier during 2016 — investment has replaced consumption as the main driver, while export performance has improved.

  • The first estimate for GDP growth in Q3 is an annualised rate of 3.2%.
  • The rates of growth for both the first and second quarters are now estimated at 4.9% and 3.2%.
  • Recall that the initial estimate for Q1, published in May, was only 0.8%!! That has been revised upwards every month since then! The CBS always warns that its initial estimates are subject to substantial revision — they know what they are talking about!
  • The initial data for Q3 show lower rates of growth for private consumption, public consumption and exports, as well as imports, compared to Q2. What’s going on?
  • There are three big stories at work. The first is in investment, where the rate of expansion climbed to 12.2% in Q3. This reflects a huge (135% on an annualised basis!!) jump in investment in plant and equipment — as well as higher investment in residential construction.
  • The second big story is the end of the massive boom in vehicle imports. These began falling in Q2 but really slumped in Q3, by 58% annualised! That caused the rate of increase in imports to slow very sharply (from 22% in April-June to less than 6% in July-September).
  • Thirdly, there is renewed weakness in exports, mainly of goods, and mainly in the electronics and chemicals sectors. Service exports seem stable, with tourism finally recovering.
  • Note, too, that private consumption is growing much more slowly, because people are not buying so many cars and household appliances.
  • The surge in investments is obviously great news. If, as seems likely, the huge jump is linked to the construction of the giant new Intel facility, then next year investment growth will fade — but electronics exports will rise sharply when production starts at the new facility in Kiryat Gat.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.