Growth eases in 4Q to slowest pace since 2009

The Israeli economy grew at an annual rate of 3.6 percent in the second half of 2011.

February 16, 2012 23:01
2 minute read.
Tel Aviv Stock Exchange

Tel Aviv Stock Exchange TASE 311 (R). (photo credit: Gil Cohen Magen / Reuters)


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The Israeli economy grew at an annual rate of 3.6 percent in the second half of 2011, marking the beginning of a slowdown, the Central Bureau of Statistics reported Thursday.

Growth eased in the fourth quarter to its slowest pace since 2009 as exports and private consumption declined amid the European debt crisis. The expansion rate fell to an annualized 3.2%, compared with a revised 3.8% in the third quarter, the statistics bureau said in a preliminary report. The median estimate in a Bloomberg survey of seven economists was 3%.

Gross domestic product rose by an annualized 5.3% in the first half of 2011 and 5.8% in the second half of 2010, the bureau said.

Estimates show the economy grew by 4.8% in 2011, mirroring the previous year’s growth rate.

The economy should grow 2.8% to 3.2% next year, according to forecasts made by the Finance Ministry, the Bank of Israel and the Organization for Economic Cooperation Development. All three bodies slashed their Israel growth estimates late last year, citing the effects of the ongoing European debt crisis and an expected global economic slowdown.

Growth is expected to slow to a little less than 3% in 2012, down from 4.8% in the previous year, the International Monetary Fund said Monday, lowering its forecast from a September prediction of 3.6%. The Bank of Israel cut its benchmark interest rate by a quarter- point last month to 2.5%, the third reduction in five months, saying the European debt crisis remains a threat.

Israeli officials have continued to express optimism, including Bank of Israel Governor Stanley Fischer, who said in late December that as long as a disaster is averted in Europe, the situation in the United States kept under control and the Israeli economy managed responsibly, Israel will emerge from 2012 with the average growth rate of the past three decades.

“Despite the better-than-expected headline figure, after analyzing the components, the picture looks less bright,” said Modi Shafrir, chief economist at Tel Aviv-based I.L.S. Brokers. “Both the export component and the private-consumption component continued to decrease.”

A major contributor to growth in the fourth quarter was government consumption, Shafrir said.

It expanded 8.8% after advancing 3.6% the previous quarter. Imports fell 11.1%.

Exports of goods and services declined an annualized 17.4% after a 7.7% fall in the third quarter.

Private consumption fell 4%.

Investment in fixed capital rose an annualized 1.2%, compared with 11.1% in the previous three months.

Public-consumption expenditure rose 5.1%, investments in fixed assets increased 9.2% and personal-consumption expenditure per capita dropped 2.9% in the second half of 2011. All percentages are annualized, meaning they compare the second half of 2011 to the second half of the previous year.

“Looking ahead, a lot depends on how the European crisis plays out,” Victor Bahar, deputy manager of Bank Hapoalim’s economics department, said in a telephone interview prior to the release.

“Global trade is declining, and therefore, Israeli exports are trending downward. Private consumption is at a low level.”

Israel’s Purchasing Managers Index fell to its lowest in almost three years in January, indicating a “sharp contraction” in industrial activity, Bank Hapoalim said Wednesday. The index fell to 36.3 in January, the lowest since March 2009, from 42.7 the previous month, it said. The decline was led by production and domestic demand it said.

Bloomberg contributed to this report.

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