Economy defies forecasts, grows 3.2% in Q2

Preliminary CBS report exceeds expectations, points to surprising growth; Steinitz responds cautiously, calls for restraint.

economic outlook graph economy money 311 (photo credit: Stockbyte)
economic outlook graph economy money 311
(photo credit: Stockbyte)
Israel’s economy made a surprising recovery in the second quarter, expanding at an annual rate of 3.2 percent, according to a preliminary report released by the Central Bureau of Statistics on Thursday.
This exceeded expectations that there would be a continuation of the trend that saw gross domestic product slow to an annual rate of 3.1% in the final quarter of 2011 and 2.8% in the first quarter this year.
Exports of goods and services were a key factor behind the strong growth figures, rising at an annual rate of 10.3% in the second quarter. Private consumption expenditure rose 5.4%, public consumption expenditure climbed 1.8% and the value of fixed asset investments decreased 1.1%.
Despite Thursday’s positive figures, the economy is still technically going through a slowdown. GDP rose at an annual rate of just 3% in the first half of 2012, the CBS said, compared to 3.3% in the second half of 2011 and 5.1% in the first half of 2011.
Finance Minister Yuval Steinitz responded cautiously to the announcement, saying, “It shows that the economy is at a crossroads: On one hand, the engines of growth continue to operate, but on the other there are clear signs of a slowdown deriving from the economic crisis in Europe and the US.”
He added, “The data require us to maintain budget restraint and economic discipline all the more forcefully, through measures that support high growth and low unemployment.”
Labor Party chairwoman Shelly Yechimovich used the occasion to criticize Prime Minister Binyamin Netanyahu, saying: “After three years of Netanyahu telling us that the economy is doing so wonderfully well, and then one clear day announcing that he was mistaken and that everything is grim, it is again obvious that every hasty Netanyahu declaration requires a deep examination.”
These growth figures testify, she said, “that even Netanyahu’s method of joyously imposing insufferable economic directives on the middle class and the poor via threats of economic collapse were too hasty and too severe.”
Last week, the Knesset approved the government’s multibillion-shekel tax hike package, which Steinitz and Netanyahu say is designed to prevent exceeding the 2013 budget deficit target of 3% and protect Israel in the event of another global economic or financial crisis.
With the possibility of a financial crisis in Europe looming in the background since the middle of last year, the Treasury and the Bank of Israel have altered their 2012 economic growth forecasts several times.
The Bank of Israel is currently predicting 3.1% growth, although it reported last week that indicators of economic activity in the first half were mixed, leading to “a high level of uncertainty” regarding the trend in GDP.
“During July [which falls outside the periods surveyed by the BoI and CBS], there were additional indicators and revisions that strengthened the assessment of an actual and expected slowdown in economic activity,” the central bank said in its latest Monetary Policy Report.
“Should these indicators remain at such levels, it may be assumed that as part of the next forecast by the Research Department at the end of September 2012, the forecasts of inflation and growth for 2013 will be revised downward,” the report continued.