Economy expands 7.8% in 4Q

Last year’s 4.5% growth rate surpasses that of Sweden, Japan, Germany.

By SHARON WROBEL
February 17, 2011 06:36
2 minute read.
The Bank of Israel.

The Bank of Israel.. (photo credit: Ariel Jerozolimksi)

 
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The economy grew at the fastest pace in four years in the fourth quarter of 2010, driven mainly by private consumption and investments, the Central Bureau of Statistics reported Wednesday.

Gross domestic product expanded at an annualized rate of 7.8 percent in seasonally adjusted terms, compared with 4.4% in the third quarter and 5.2% in the second quarter. GDP rose a preliminary 5.4% in the second half of last year, up from 5% in the first half of the year and 3.4% in the last six months of 2009. Business growth expanded 6.1% in the second half of 2010.

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“The strong growth rate in the second half of 2010 is a reflection of the success of the government’s original and responsible economic policy, including the two-year budget formulated two years ago,” Finance Minister Yuval Steinitz said Wednesday. “This policy, together with a stable private sector, the Bank of Israel’s cautious policy and the industrial quiet that has been maintained, thanks to the economic package deal with the Histadrut labor federation and employers, have all led Israel to sound economic achievement that stands out in comparison with most OECD member countries.”

In 2010, the economy expanded 4.5%, up 0.8% compared with 2009.

GDP among OECD member countries rose an average of 2.8%. Last year, Israel’s growth rate was greater than that of Sweden (4.4%), Japan (3.7%) and Germany (3.5%), while trailing Mexico (5%), Chile (5.2%) and South Korea (6.2%).

Israel should be able to maintain its growth rate if budget discipline is kept and cooperation among different groups in the economy is secured, Steinitz said.

GNP in the fourth quarter grew at the fastest pace since the same quarter in 2006, the statistics bureau said.



In a report published Sunday, the Bank of Israel said it expected GNP for the fourth quarter to be between 4.3% to 4.6%, while other economists had predicted 4% to 5%.

“The preliminary figures are a surprise and are well above our expectations and those in the market,” Harel Financial Group chief economist Michael Sarel said Wednesday. “There is still a possibility of a downward correction in the coming months. But if the figures are confirmed, inflationary pressures will be further boosted, mainly driven by the sharp surge in private consumption.

As a result, the Bank of Israel will need to raise interest rates at a much faster pace in the coming months, and the shekel would be expected to strengthen.”

Growth in the fourth quarter was helped by increased consumer and government spending and investment in fixed assets and exports, the statistics bureau said.

Private consumption grew 9.8% in the fourth quarter, up from 1.1% in the third quarter, while government spending rose 5.7%. Investment in fixed assets surged 15.9% in the fourth quarter.

Exports of goods increased an annualized 10.3% in the fourth quarter, driven by diamond trade, while imports rose 22.5%. Not including diamonds, exports of goods grew 1.1%.

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