First quarter growth faster than expected

The economy grew at an annualized rate of 5.4 percent in the first three months of the year.

The economy grew at an annualized rate of 5.4 percent in the first three months of the year, racing ahead of the gloomy growth outlooks issued by the Bank of Israel and the Finance Ministry. "The positive data is an indication for how well the Israeli economy can cope amid a global financial crisis," Finance Minister Ronnie Bar-On said in a speech at the 59th plenary meeting of the Group of 30 senior economists from developed countries, hosted by the central bank in Jerusalem on Sunday. "It is clear, however, that we are still in a time of great volatility and uncertainty, and therefore we need to continue to watch the developments in global markets and do everything to maintain budgetary discipline." Gross domestic product rose by an annualized 5.4% in the first quarter of this year, compared with 5.8% growth in the fourth quarter of 2007 and 5.9% in the third quarter, the Central Bureau of Statistics reported Sunday. Growth projections for the economy in 2008 of 4.3% by the Finance Ministry and 3.2% by the Bank of Israel painted a more pessimistic scenario. "The figures are positive, but we can not jump in joy and interpret the growth rate in the first quarter as an indicator for the remaining quarters," Shlomo Maoz, chief economist at the Excellence Nessuah investment house, said in a phone interview with The Jerusalem Post Sunday. "The components boosting growth in the first quarter, such as the increase in private consumption, are tangible, more temporary and mainly the result of four years of continued economic growth and a sign of wealth accumulation." Moaz, who expects the economy to grow 3.8% this year, said the next quarters were likely to show a continued slowdown in the growth rate. In the first three months of the year, business production rose by 6.1%, down from 7.6% in the fourth quarter and 7.3% in the third quarter of last year. In spite of the manufacturers' claims of a crisis in the export industry, the first quarter saw exports of goods and services rise by an annualized 12.6%, after rising by 14.7% in the preceding quarter. Industrial exports, not including diamonds, grew at an annualized rate of 6.2% in the first quarter; imports of goods and services rose by an annualized 18.7%, up from 6.8% in the preceding quarter. Investment in fixed assets rose by an annualized 9.6%, after falling by 11.8% in the preceding quarter. "GDP growth in the first quarter was boosted by a rise in private consumption, exports of goods and services and investments in fixed assets," the CBS said in its report. Private consumption, excluding durable goods, rose by 6.1%, driven by growth in the purchase of cars, refrigerators, washing machines and air conditioners. Private consumption of durable goods rose by 18.8% in the first quarter. The Bank of Israel will fix a new interest rate decision on Monday. In response to the unexpected 1.5% rise in the Consumer Price Index in April, most analysts expect the central bank to raise interest rates by 0.25% to curb inflationary pressures, which in turn would further weaken the dollar against the shekel. "The market at the moment is very volatile," Maoz said. "An interest-rate hike by the central bank will add to the factors weakening the greenback against the shekel, thereby hurting exports and growth in the economy and raising unemployment. Instead, the central should more severely intervene in the foreign-exchange market."