"Despite the comparative weakness of the first half figures, there's no drama in them; this will come in the figures for the third quarter of the year, which will reflect the effect of the deterioration in the security situation on economic activity," says Bank Leumi (TASE: LUMI) Chief Economist Gil Bufman in a special survey published following the release yesterday of growth data for the Israeli economy.
"It Is not inconceivable that the GDP figure for the third quarter will indicate a fall in activity (negative growth) rather than the moderate growth we have seen in previous quarters," Bufman writes.
According to the growth estimate released yesterday, the Israeli economy grew at an annual rate of just 1.7% in the second quarter. This is the lowest quarterly growth figure since 2009. In the first quarter, the economy grew at a rate of 2.8%. Bufman stresses that the second quarter figure is only an initial estimate that could be revised more than once in the coming months.
Given the volatility of the quarterly numbers and the question mark over the reliability of the initial estimate, Bufman writes, we should focus on analyzing the figures for the first half of 2014 in comparison with the first half of 2013. The comparison produces a growth figure of 2.5% in annual terms in GDP and 2.7% in private sector product.
"This is a fairly moderate rate of growth, but still positive in per capita terms," Bufman says. "The main points of weakness are private consumption, which has hardly grown in per capital terms; the decline in investment in fixed assets, due to the near freeze in the residential construction industry after the announcement of the 0% VAT on first homes plan; and the continuing weakness in exports, arising from weak global demand and significant real appreciation of the shekel."
Bufman provides an analysis of GDP figures during times of wars and military operations such as the Second Lebanon War, Operation Cast lead, and Operation Pillar of Cloud, and comes to the conclusion that the weakness in growth is temporary. So, for example, in the third quarter of 2006 (when the Second Lebanon War broke out) GDP fell by 2.1% in annual quantitative terms in comparison with the second quarter of 2006. "Once security calm was restored, and with the return of consumer and business confidence, injection of cash by the government, construction, rehabilitation and re-equipping, growth accelerated considerably, reaching 10% in annual terms in the fourth quarter of 2006 and the first quarter of 2007," Bufman finds. Similar recovery took place after Operation Cast Lead and Operation Pillar of Cloud, he says.
Published by Globes [online], Israel business news - www.globes-online.com - on August 18, 2014
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