Economy grew 4.5% in third quarter

Israel's gross domestic product grew 4.5 percent in annual terms in the third quarter of 2005, as the business-sector product jumped 7.4%, the Central Bureau of Statistics said Wednesday. "This is very positive, showing that it is the business sector that is expanding, and that the policy of cuts in public-sector spending has contributed much to business-sector growth," said Rafi Melnick, dean of the Lauder School of Government at the Interdisciplinary Center in Herzliya and formerly of the Bank of Israel. Growth in the business-sector product - which constitutes roughly 70% of the overall GDP - reflected increased production in the industrial sector and most service sectors, particularly financial, business, and personal services. Business-sector product grew 7.7% in the second quarter and 3.6% in the first, the CBS said. The latest growth figure follows 6.4% annualized GDP growth in the second quarter and 3.5% in the first quarter. The CBS has forecast that the GDP will have grown 5.1% in total this year, while the Bank of Israel and the Finance Ministry most recently predicted 4.5%. Quarterly GDP growth figures include a large estimated component which the CBS generally treats cautiously. As such, quarterly figures tend to be lower than the eventual yearly growth figure, Melnick commented. The GDP rose 4.3% last year, but only 1.3% in 2003 after sinking 0.7% and 0.9% in 2002 and 2001 respectively. Per capita consumer spending remained stable in the third quarter, following an annualized 1.8% growth in the second quarter and a 1.6% drop in the first. Non-diamond exports rose 4% in the third quarter, following 5.6% growth in the second and 2.6% in the first. Agricultural exports fell fully 44.7%, while exports of tourism services dropped 5.2%. Investments in fixed assets (building, machinery and equipment, and transportation vehicles) rose 8.1% in annual terms, having grown 6.7% in the second quarter after dropping 11.9% in the first. Widespread expectation that Bank of Israel Governor Stanley Fischer will raise the shekel interest rate for December by at least one quarter of a percentage point has been reinforced by October's 0.8% inflation figure as well as the positive third-quarter GDP growth figure. "If the market is growing at a good rate, Fischer will be less worried about raising the interest rate as a tool to prevent the rises in the dollar, oil and commodities from causing inflation," Melnick said. "Macro-economic statistics in Israel are very positive. It's no wonder that Dan Quayle is buying the country's number-two bank."