Omer regev
25/05/2016
On 16 May, Israel’s (A1, Stable ) Central Bureau of Statistics reported that the Israeli economy grew at an annualized rate of only 0.8% in the first quarter of 2016, down from 3.1% in the fourth quarter of 2015 and well below expectations.
The latest figures suggest recurring economic underperformance as the economy’s export engine remains under pressure from the continued real appreciation of the shekel. The pace of growth in all but two of the last seven quarters has come in below the 3% potential growth rate estimated by the IMF. Moreover, this was the third time in the same period that growth failed to reach 1% annualized.
The below-par growth outcomes add uncertainty to the authorities’ 2.8% growth assumption and in turn the 2.9% of GDP fiscal deficit target for this year. In turn, a worse fiscal outcome would imperil the continued improvement in the government's debt metrics. Israel’s economy is renowned for its resilience, a characteristic that supports the government’s creditworthiness despite repeated geopolitical disturbances and the small, very open economy. The country has long benefited from a vibrant and innovative economy – the high-tech sector has been an important driver of growth and employment for years – that has weathered repeated economic downturns as well as cross-border and internal clashes.
Unemployment dropped to all-time lows in the past year even as labor force participation is at all-time highs, and inflation is practically non-existent. However, the slowdown in growth since mid-2014 has been persistent, attributable to the broad-based weakness in exports and aggravated by a highly fractious political environment.
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