Economy returns to growth in second quarter

Steinitz: Positive data points to stabilization, but we're not out of the woods.

stock exchange 224 (photo credit: Bloomberg)
stock exchange 224
(photo credit: Bloomberg)
After two consecutive quarters of negative growth, the economy returned to positive growth in the second quarter of the year, led by a rise in exports of goods and services and private consumption, the Central Bureau of Statistics reported Sunday. Gross domestic product rose by 1 percent in annual terms in the second quarter after contracting by 3.2% in the first quarter of the year and 1.4% in the last quarter of 2008. "We are talking about another positive indicator, adding to an array of positive data we are receiving over the last few weeks, pointing to a stabilization of the economy," Finance Minister Yuval Steinitz said Sunday. "However, it is still too early to declare an end to the crisis and exit out of the recession. "We still expect the rate of unemployment to continue to rise, and the creation of jobs will remain at the top of our agenda. In addition, the decline in investments in fixed assets is still continuing, which can be expected to slow down growth in the long term." Prime Minister Binyamin Netanyahu, commenting on the bureau's data, said the Israeli economy was in better shape than the leading economies in the world. The bureau's economists said the return to economic growth in the second quarter was driven by an annualized rise of 5.8% in exports of goods and services after a decline of 27.2% in the previous quarter, an annualized rise of 4.4% in expenditure on private consumption and an annualized rise of 19.8% in public consumption not including defense. Against this trend, investment in fixed assets continued to contract at a rate of 10.3%. "GDP grew at an annualized rate of 1% in the second quarter, versus our forecast of a contraction of 0.5%. It seems that the return to growth was led mainly by a number of one-off factors," Ori Greenfeld, an economist at Clal Finance Investment Management Ltd., said Sunday. "The rise in exports was driven by increased production of the Intel plant in Kiryat Gat, which led to accelerated growth of 78% in exports of electronic components. Not including that impact, exports rose at a rate of only 2%." The bureau's data for the first half of the year showed that the economy contracted an annualized 1.7% after growing at a rate of 0.9% in the second half of last year and 5.2% in the first half of 2008. The Bank of Israel forecasts a 1.5% contraction for all of 2009, while the Finance Ministry expects a 1% decline. Exports of goods and services dropped by an annualized 22.9% in the first six months of the year after declining 11.8% in the previous half. Sector by sector analysis found that in the first six months of the year, industrial exports, not including diamonds, fell by an annualized 18.2%, the tourism sector exports plunged 51% and diamond exports were down 43%.