Economy grows 5.2% in 2005

Best fiscal year since 2000 greatly exceeded the Bank of Israel's most recent forecasts.

shekels 88 (photo credit: )
shekels 88
(photo credit: )
Israel's gross domestic product grew 5.2 percent to nearly NIS 523.9 billion in 2005, its biggest gain in five years and well above the Bank of Israel's most recent forecast, according to preliminary figures released Sunday by the Central Bureau of Statistics. "It's good news," said Leader & Co. analyst Jonathan Katz. "Everyone expected that the Israeli economy is growing rapidly, and it's apparently growing even more rapidly than people thought," he said, cautioning, nonetheless, that the quick growth rate could lead the Bank of Israel to tighten monetary policy and continue raising the interest rate. Policy-makers looking for inflationary pressures could interpret the quick GDP growth rate as a signal that the economy is probably growing beyond what it can maintain for the long-term, Katz said. The new figure was higher than Bank of Israel Governor Stanley Fischer's most recent forecast of 4.6% GDP growth for 2005, as well as the bureau's own prediction of 5.1% growth released in late September. This is the highest growth figure for the country since the economy grew 7.7% in 2000 and 5.4% in 1996, outpacing GDP growth among the OECD (Organization for Economic Cooperation and Development) member states, which averaged 2.7%. GDP grew 3.6% in the US, 3.4% in Spain, and 3% in Canada. Israeli GDP grew an updated 4.4% in 2004 and 1.7% in 2003, the CBS added. With the population growing 1.8% in 2005, the GDP per capita grew 3.3% to NIS 80,100, or $17,800, the bureau said, noting that GDP per capita was on the rise abroad, as well. Among OECD member countries, GDP per capita grew 2% on average. Business-sector product rose 6.6% in 2005 - reflecting growth in most service sectors - following 6.3% growth in 2004 and 2.5% in 2003. Industrial product grew 3.8% in 2005, with most service sectors surging 6% to 9%. Construction-sector product, on the other hand, continued to contract. Worker productivity - defined as the net product per hour worked in the business sector - grew 2.8% in 2005, following 2004's 5.6% growth. Current government deficit totalled NIS 11.8b. in 2005, fully 47% less than in 2004, the CBS said. As a percentage of the GDP, current government deficit was cut by more than half, to 2.1% in 2005 from 4.3% in 2004, while overall government deficit was cut to 2.5% from 5.1%. "[Former finance minister Binyamin Netanyahu] did a good job - reforming the labor market, capital market, the ports, and others - and the government ended up spending less than it expected," commented Shlomo Maoz, chief economist at Excellence Nessuah. Public spending grew 2.7% in 2005, after dropping 2.4% the previous two years, with defense spending growing 5.5% and civilian spending up 1.5% in 2005, following 5.6% and 1% drops, respectively, the year before. Defense imports alone soared 19% in 2005, while domestic defense consumption rose only 1.4%, the CBS noted, noting that without defense imports, total public spending would have only grown 1.5%. Exports of goods and services grew 7% in 2005 - 8.3% without diamonds and start-up companies, down from 17.4% in 2004 - or 18.9% without diamonds and start-ups. Consumer spending rose 4% in 2005, following 5% growth the previous year. Maoz predicted that the trends boosting growth in 2005 would continue into 2006, expanding the GDP by 5.4% in the new year, while Katz agreed with the Bank of Israel's prediction of 4.3% growth, noting that the surges in incoming tourism and defense spending were unlikely to be repeated in 2006.