The reports of a decline in Israeli exports may have been greatly exaggerated. After revising its growth rate for the first quarter from 0.8% to 1.3%, the Central Bureau of Statistics could once again raise its projection for economic growth in its upcoming update of the national accounts to be published in August - at least, according to economists at investment firms.
The economists based their forecast on a Central Bureau of Statistics revision of service export data from the last two years. They said the revision substantially changed the overall trend in the service sector.
Last month, the Central Bureau of Statistics revised upwards the growth figure for the first quarter from 0.8% to 1.3% after discovering the decreases in material and service exports were not as severe as initially believed in the initial estimate. Despite the revision, the Bank of Israel and Bank Hapoalim lowered their growth forecasts for 2016 from 2.9% to 2.4% and 2.2% - due to declining exports.
The slowdown in service exports in recent months was a cause of much concern in economic ministries. Minister of Finance Moshe Kahlon claimed the weakening goods exports did not reflect a weakness in the financial sector - but he had no explanation to offer for the drops in service exports.
Exports of goods rely primarily on pharmaceuticals, chemicals, and computer processors - and are mainly accounted for by four major companies. The drop in this type of export was due to a combination of temporary and one-off events including an upgrade to the production lines at the Intel fab in Kiryat Gat and accounting adjustments by Teva.
Unlike goods exports, service exports (which include tourism, financial activity, and software) encompass a wider, more diverse segment of the service sector - one of the most important to the Israeli economy. In recent years, service exports grew by double-digits; but growth faltered in 2015, reaching just 2.2%. In the first quarter of 2016, the Central Bureau of Statistics reported a 3.3% drop in service exports.
Now it appears the downward trend has halted; in April, service exports rose by 2.4%. Furthermore, it seems the previous Central Bureau of Statistics figures on service exports were too conservative, at least according to an analysis by Ofer Klein, the head of the economics and research department at Harel Insurance Investments and Financial Services Ltd. (TASE: HARL.
In a report published on Tuesday, Klein said the Central Bureau of Statistics made “an unusual upward revision” of the data for the past two years. As part of the revision, service exports were raised by 10% for the first quarter and by 4% for 2015. Speaking to “Globes”, Central Bureau of Statistics officials said the revision was the usual, methodological update which usually takes place occurs once the bureau receives the annual survey data in April and May.
Klein believes the export revision will also lead to an upward revision in growth rates for the first quarter, to be released in three weeks. It is also the reason why his growth forecast for 2016 is more optimistic than the Bank of Israel’s estimate - which was lowered on Tuesday to 2.4%.
However, one notable absentee in announcing a growth forecast is the Ministry of Finance. The last growth forecast published by Ministry of Finance chief economist Yoel Naveh at the end of March predicted a 2.8% growth rate in 2016.
Published by Globes [online], Israel business news - www.globes-online.com - on June 30, 2016
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