Israel Economy Bounces Back With 15.4% Annualized GDP Growth
The Israeli economy grew by an annualized 15.4% in the second quarter, due largely to the lifting of a coronavirus lockdown, as officials labor to avert another one.
The figure published Monday by the Central Bureau of Statistics marked a significant turnaround from the first quarter, when the economy contracted by a revised 1.4%. Growth was also buoyed by a significant increase in the import of passenger cars compared to the first quarter of 2021, according to the statistics bureau.
The Israeli economy has bounced back swiftly after shrinking 2.5% in 2020 due to the pandemic. A thriving high tech scene, relatively low borrowing costs and strong private consumption are all helping to push the economy forward, with the Bank of Israel predicting gross domestic product will grow 5.5% this year.
Private consumption expenditure grew at an annualized rate of 36.3% in the second quarter, while gross fixed capital formation rose by 9.7%, according to the Central Bureau of Statistics. The consumption figure after the economy reopened was “much greater than what we expected,” said Victor Bahar, chief economist at Bank Hapoalim in Tel Aviv.
The loose fiscal and monetary policy implemented during the pandemic also contributed to the spike in consumption and investment, Bahar said.
“Without the fiscal aid of the government, the consumers probably couldn’t continue to consume at such a fast rate,” Bahar said. The 22.4% annualized growth in residential building was largely the result of very low interest rates, which pushed people to the housing market, he added.
Clouding the economic outlook for 2021 is a recent spike in Covid-19 cases due to the highly transmissible delta variant. The new government led by Naftali Bennett has vowed to do everything possible to try to prevent another damaging lockdown, but hasn’t ruled one out.
Bank of Israel Governor Amir Yaron told Bloomberg News last week that another one-month lockdown could drag down growth forecasts for 2021 by half a percentage point, to 5%.
Bahar predicted annualized growth rates of about 4% in the coming quarters, but warned that another lockdown and current shortages in the labor market could hamper Israel’s economic recovery. Nira Shamir, chief economist at Israel Discount Bank Ltd., said the economy remained on track to grow between 5%-5.5% in 2021 if it remains open.
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