The GDP growth figures for the second quarter published by the Central Bureau of Statistics today have already generated headlines about an "economic slowdown", and all the sides in the tent rebellion will use and abuse the numbers in the days ahead. So before all the spin, a deep breath should be taken and the data should be examined to see what they say.
Is Israel really in a slowdown? This is a matter of perspective. In comparison with the near-zero growth rate for Germany published today, 3.3% growth is robust by any measure. Any European finance minister would crow about such a figure. In fact, official Israeli figures state that GDP growth will slow, so there is no need to panic about the second quarter figure.
Furthermore, the Central Bureau of Statistics figure is a preliminary estimate, and it will be revised and updated. Quarterly figures do not mean much. The figure for the first half of 2011, is 5% annualized GDP growth, which is far from any definition of a slowdown. Anyone who wants to focus on the good news can see it in the annualized 20% plus growth in investment in housing in the second quarter.
But since we have to worry, policy makers ought to pay attention to two worrying figures. The first is the slump in export growth from an annualized 9.8% in the first quarter to 3.4% in the second quarter. The second is the drop in investment excluding housing from 18.6% annualized growth in the first quarter to 2.3% in the second quarter.
It is necessary to reiterate that these are quarterly figures, and caution is warranted in drawing conclusions. Nonetheless, if these trends continue, there will be a real problem. The crises abroad and the appreciation of the shekel are apparently affecting domestic macroeconomic figures.
These two factors, together with private consumption, explain the drop in GDP growth. Private consumption per capita rose by an annualized rate of only 0.6%, reflecting the growing pessimism among households. This figure includes a 14.5% slump in purchases of durable goods..
Judging by the Consumer Confidence Index, compiled by Globes Research and pwc Israel, households' worries are strengthening in the third quarter, suggesting that no good news will come from the domestic front.
To sum up, the second quarter gave few reasons for the Israeli economy to celebrate, and several sectors, especially exports, show many discouraging signs. On the other hand, Israel is still growing faster than many other industrialized countries, which should give some solace to someone in Israel.
Published by Globes [online], Israel business news - www.globes-online.com - on August 16, 2011
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