Economy unexpectedly grows 4.7% in 2Q

Growth in the business sector expanded 6%, compared with 4.6% in the first quarter and 4.3% in the last quarter of 2009, the statistics bureau reported.

Chart  (photo credit: Levi Shapiro)
(photo credit: Levi Shapiro)
The economy expanded at a faster pace in the second quarter, driven by private consumption, exports of goods and services and investments in residential housing, the Central Bureau of Statistics reported Monday.

Gross domestic product grew by a preliminary 4.7 percent in seasonally adjusted terms after expanding 3.6% in the first quarter and 4.3% in the fourth quarter of 2009. In the first half of the year, the economy grew an annualized 4.1% after growing 3.3% in the second half of 2009 and contracting by 1.5% in the first half.
In light of the debt crisis in Europe and the weakness of the euro, which threatened to damage growth and hurt demand for goods and services, the economy was expected to grow about 3% in the second quarter.
“The figures are very encouraging, especially in view of the concern raised over a slowdown in the Israeli economy impacted by the debt crisis in Europe and slower economic indicators in the US in recent months,” said Ron Eichel, chief economist and strategist at Meitav Investment House, which raised its 2010 growth forecast for the economy to 3.8% from 3.6%.
“This is really an economy running on all pistons,” said Jonathan Katz, a Jerusalem-based economist for HSBC Holdings Plc, who forecast 3.7% growth. “Down the road, the Bank of Israel will have to increase interest rates. This is clear to them, clear to everyone, and the pace may surprise many.”
Growth in the business sector expanded 6%, compared with 4.6% in the first quarter and 4.3% in the last quarter of 2009, the statistics bureau reported.
Exports of goods and services rose 15.8%, up from 5.5% in the first quarter. Export growth was boosted by industrials, diamonds and agriculture, while exports of services declined.
Imports rose 8.3%, down from 21.8% in the first quarter.
Private consumption rose an annualized 8.7%, up from 2.8% in the first quarter.
Investment in fixed assets, such as residential housing, construction and transportation, increased an annualized 10.9%. Investment in residential construction rose an annualized 17.1%, the fastest pace since the last quarter of 2008.
“The figures show that the economic plan implemented by the Finance Ministry as part of the state budget 2009-10 has contributed to a change in the economy and the emergence of the Israeli economy out of the global crisis,” Finance Minister Yuval Steinitz said Monday.
“I am convinced that the new economic plan for the biannual budget 2011-12, which focuses on job creation and development of competitive advantages of the Israeli economy, will put us on a fast economic path.”
Barclays Capital analyst Daniel Hewitt expressed some caution over the upbeat preliminary figures.
“This was much higher than our forecast of 3.1% and the consensus forecast of 2.9%,” he said. “The higher growth reading is a surprise given the plethora of negative data from [other] indicators. At this time there is some uncertainty as to where the economy is headed. The more-forward-looking data suggest a deceleration, and preliminary GDP data in Israel is subject to revision.”
Hewitt cited the July Purchasing Manager’s Index, which was below 50 for the third consecutive month on weak new orders, both domestic and for exports.
“Exports declined in recent months, notwithstanding relatively strong exports in June and July,” he said. “Industrial production is still rising, but the forward-looking Israel State of the Economy indicator has decelerated in recent months.”
Bloomberg contributed to this report.