Economic Growth in Israel

By Steven Scheer

JERUSALEM (Reuters) – Israel’s economy grew less than expected in the second quarter of 2024, extending a period of volatility since the start of war in Gaza, but the weakness is likely not enough to prompt a central bank rate cut next week given rising inflation.

The Central Bureau of Statistics reported an initial estimate on Sunday, stating that gross domestic product (GDP) grew by an annualized 1.2% in the April-June period, below a Reuters consensus of 4.4%. On a per capita basis, GDP fell 0.4% in the quarter.

Overall growth was driven by gains in consumer spending (12%), investment in fixed assets (1.1%), and government spending (8.2%), offsetting an 8.3% decline in exports.

First-quarter GDP was revised to 17.3% annualized from a prior estimate of 14.4%, rebounding from a contraction of 20.6% in the fourth quarter of 2023.

The war has been ongoing in Gaza since the cross-border attack on southern Israel by Hamas-led Palestinian militants on October 7.

For the first half of 2024, Israel’s economy grew at an annual rate of 2.5%, compared to 4.5% during the same period in 2023, according to the statistics bureau.

“The economy is having difficulty recovering from the war, mainly because of supply and not demand problems,” said Leader Capital Markets Chief Economist Jonathan Katz. He noted that the lack of Palestinian workers since the onset of the conflict was hindering a full recovery in residential construction investment.

Recent figures showed a spike in inflation to 3.2% in July, up from 2.9% in June, surpassing the government’s annual inflation target of 1-3%.

The Bank of Israel is set to make a decision on rates on August 28.

After cutting its benchmark interest rate in January, the central bank kept the rate unchanged at meetings in February, April, May, and July, citing geopolitical tensions, rising price pressures, and looser fiscal policy due to the war.

Katz added, “Since the weak growth figures stem from supply and not demand issues, they are not expected to support interest rate cuts, especially in light of signs of increasing inflation in the July CPI and a high level of geopolitical risks.”