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(photo credit: Ariel Jerozolimski)
Despite the war in the North, Israeli gross domestic product grew 5 percent this year, according to preliminary figures released by the Central Bureau of Statistics, beating economists' expectations as exports of goods and services and investment in fixed assets surprised on the upside.
"The Israeli economy this year grew faster than our estimates following the war in the Lebanon which stood at 4.5%, but somewhat slower than our original forecast for the year before the war which stood at 5.4%," said Shlomo Maoz, chief economist at Excellence Nessuah. "The higher than expected growth rate was driven by strong growth in investment of fixed assets and industrial exports, which doubled compared with last year, and an end of year balance of payments surplus of $3.9 billion compared with $2.9b. in 2005."
In the aftermath of the war, economic growth slowed to an annualized 2.9% in the second half of the year, compared with 5.9% in the first half of 2006, according to the preliminary national accounts figures published by the CBS on Sunday.
The agency improved its last growth forecast in October of 4.5% to 5%, while the Bank of Israel last month raised its 2006 growth estimate to 4.8% from 4.6% and its 2007 GDP growth forecast to 4.6% from 4% as the repercussions of the Lebanon war were found to have weighed less on the economy than previously estimated.
Business sector product rose by more than 6.3% this year compared with 6.7% in 2005, led by strong industrial product growth, which rose by 8.2%, the CBS said.
Exports of goods and services grew 5.1%, similar to 2005, boosted mainly by the growth rate of manufacturing exports (excluding diamonds) which nearly doubled from 6.4% in 2005 to 12.6% this year. Meanwhile, tourism services exports increased by only 1.2% in the aftermath of the war compared with a growth rate of 28.4% in 2005.
In addition, the growth rate of investment in fixed assets more than doubled to 6.1% from 2.9% last year.
Furthermore, the government deficit was cut in half from 2.4% of GDP in 2005 to 1.2% this year despite the mounting costs of the war. The government deficit totaled NIS 7.2b. in 2006, a reduction of NIS 6.7b. from 2005, as government revenues increased by 8.7% compared with 6.4% in the previous year.
Another major factor that contributed to economic growth this year were the figures for the current account surplus, which nearly doubled from NIS 3.8b. to NIS 7.3b. in 2006, making up 5.2% of GDP compared with 2.9% in the previous year.