Jerusalem – Israel’s Economy Slows To Near Standstill As Consumer Spending Abates

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     File: A worker sitting as a crane unloads containers from a ship at the port of Haifa. Photo by Reuters Jerusalem – Israeli consumers took a break from spending in the second quarter, resulting in an annualized growth rate for the economy of just 0.3 percent of gross domestic product (GDP), data showed on Sunday, far weaker than expected so far in 2015.

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    GDP in the second quarter had been forecast to grow by an annualized 2.7 percent, according to a Reuters poll of analysts.

    With exports and investment struggling for more than a year and government spending limited by the lack of a 2015 state budget, Israel’s economy had only been held up by strong consumer buying.

    But private spending rose by just 0.9 percent in the April-June period in sharp contrast to quarterly gains of 5.5 to 7.5 percent over the past year. In particular, durable goods spending slipped nearly 16 percent, the Central Bureau of Statistics said.

    The data poses a dilemma for the central bank, which is predicting economic growth this year of 3 percent.

    Policymakers have left the benchmark interest rate at 0.1 percent for the past five months with the apparent intention to leave the rate on hold until 2016 before gradually increasing it.

    But the latest figures also show the economy has yet to significantly bounce back from last summer’s Gaza war, when GDP grew 0.2 percent in the third quarter of 2014.

    “The weak data are similar to the rate of growth in which there was the war – only this time without a military operation,” said Ofer Klein, head of economics and research at Harel Finance.

    Klein lowered his forecast for economic growth this year to 2.5 percent from 3.1 percent and said there was now a possibility of another cut in interest rates.

    On a per-capita basis the economy contracted by 1.5 percent in the second quarter and excluding the public sector contracted by 1 percent. Over the first half of 2015, the economy grew an annualized 2.6 percent.

    Exports – some 40 percent of Israel’s economic activity – fell by double digits for a second straight quarter, as a result of a stronger shekel and slowing global trade. Investment in fixed assets dipped 3.8 percent, while imports shed 7.2 percent and government spending gained 0.4 percent.

    The bureau said first-quarter GDP growth was unrevised at 2.0 percent.

    Minutes of the July 27 interest rates decision showed the central bank blaming two temporary factors for slower growth early in the year: restrained state spending in the absence of a budget and a near four-month strike at potash maker Israel Chemicals.

    The GDP data comes after the bureau on Friday said Israel’s annual inflation rate improved slightly to a -0.2 percent rate in July from -0.3 percent in June.


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