Israel’s GDP growth falls short of forecasts

Israel’s economic growth slowed more than anticipated in the second quarter of 2024, failing to maintain its initial rebound from the war against Gaza. Gross domestic product (GDP) rose by 1.2 per cent seasonally adjusted, following a revised 17.3 per cent surge in the prior three months, according to preliminary data from Israel’s Central Bureau of Statistics. This fell short of the 5.9 per cent growth economists had predicted.

Ronen Menachem, chief markets economist at Mizrahi Tefahot Bank, highlighted the weak figures compared to forecasts and noted that GDP per capita shrank by an annualised 0.4 per cent, signalling significant economic damage from the ongoing war.

Exports, excluding diamonds and startup companies, dropped for the third consecutive quarter by 7.1 per cent, while fixed asset investments stagnated, and imports, excluding defence and specific categories, shrank by 7.3 per cent.

Despite a rise in government consumption by 8.2 per cent and private consumption by 12 per cent, the business sector’s growth decreased by 1.9 per cent, further evidencing the war’s economic toll.

Jonathan Katz, economic strategist at Leader Capital Markets, noted that the weak growth figures, driven by supply issues rather than demand, are unlikely to support interest rate cuts, especially with rising inflation.

The Israeli finance ministry projects 1.9 per cent growth for the year, while the central bank has downgraded its forecast to 1.5 per cent. Menachem warned that economic activity might falter further in the second half of the year due to challenges in the labour market and ongoing conflict.

The death toll in Gaza has now surpassed 40,000, with talks underway for a potential ceasefire that could involve a prisoner exchange.

Attribution: Bloomberg