Israel's GDP sees 6.6% growth

One-time occurrences, such as car purchases, contribute to surge.

By DANIEL KENNEMER
May 15, 2006 18:48
3 minute read.
shekels 88

shekels 88. (photo credit: )

Israel's gross domestic product (GDP) grew 6.6 percent in the first quarter of 2006, led by surges in consumer spending and investment in fixed assets, the Central Bureau of Statistics said Monday, citing preliminary estimates in annualized terms. Though the "surprising" figure was the highest in more than five years, surpassing the 5.4% growth rate in the fourth quarter of 2005 and 4% rate in the third, IBI chief economist Ayelet Nir stressed that it was boosted by one-time occurrences, such as a rush of car purchases in response to tax cuts.

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"We had expected a high figure. The Bank of Israel's survey of companies provided indicators of such, as did the combined index [of the state of the economy], which kept on climbing, and retail figures. They all indicated strong growth, but not 6.6%," she said. Nonetheless, "the very fact that there is positive growth is certainly good for investments in the economy," she commented. The economy grew 4.3% in 2004 and 5.2% in 2005, and is expected to grow 4.2% in 2006. Business-sector GDP growth also sped up, expanding 10.6% in the first quarter of 2006, following a 7% rise in the previous quarter and 6.1% in the third quarter of 2005. The CBS attributed the first quarter's growth surge to an annualized 10.3% jump in consumer spending - up 8.7% per capita - and a 16.3% rise in investment in fixed assets, such as equipment and vehicles, by both households and economic sectors. Public spending fell 0.6% due to reductions in spending on civil labor, the bureau said. Increased consumer spending in the first quarter - reflecting increased spending on durable goods - came after a 1.0% drop in the fourth quarter, 2.2% growth in the third quarter and 5.1% growth in the second. Faster growth in investment in fixed assets in the first quarter - after a mere 0.2% rise in the fourth quarter - was primarily the result of a 56.8% spike in business-sector purchases of vehicles, following a 35.7% drop in fourth quarter, and a 20% rise in business-sector investment in equipment and machinery. Car purchases by both households and businesses accounted for the bulk of rises in both consumer spending and investment in fixed assets as tax reductions on purchases of new cars came into affect, displacing some of the overall GDP growth from the fourth quarter of 2005 to the first quarter of 2006, pointed out Nir. Nonetheless, increased purchases of equipment and machinery by the business sector constitute "a signal for future growth," she stressed. Furthermore, the 7.5% rise in current consumer spending per capita - controlling for the car rush - following a 1.6% drop in the last quarter of 2005, "certainly indicates improvement in the level of demand, as well as an increase in inflationary pressures," Nir noted. In contrast, the 2.6% drop in investment in residential construction - alongside a 1.7% decline in non-residential construction and other building works - was "disappointing", Nir said. While imports of goods and services (excluding defense) sank an annualized 5.2% in the first quarter, after a steep 13.3% drop in the previous quarter - leading to a 2.5% rise in total resources available to the economy through imports and local production in the first quarter - exports rose 2.4% in the first quarter, following a 9.6% drop. "This certainly arouses concern," Nir said, noting that the first-quarter growth was still slower than it should have been. "I would have expected a higher growth figure, coming as a correction of the previous quarter's fall, but that didn't happen." What recovery there was in exports primarily reflected growth in services exports, particularly of tourism services, which rose 41% in annualized terms. Industrial exports (excluding diamonds) rose 9.2%, while diamond exports fell 34.9% and agricultural exports dropped 36% in the first quarter of the year.


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