Despite the deep contraction in the fourth quarter, the economy is recovering

ISRAEL - In Brief 19 Feb 2024 by Jonathan Katz

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Despite the deep contraction in the fourth quarter, the economy is recovering GDP data for October–December 23 compared with the previous three months is not really relevant to the current economic environment. The fourth quarter was the deep crisis of the disaster on October 7, a sharp decline in investments (-95% in residential construction, -43% in other industries), a severe blow to private consumption (-27%) and exports (-18% due to labor shortages and damage to shipping). GDP contracted by 19 percent saar and business sector GDP by 32 percent (excluding the 88 percent jump in public consumption, defense mostly). Current economic data for January indicate a recovery, with the broad unemployment rate declining to 5.9 percent from 7.2 percent a month ago and 10.2 percent in October. Data regarding credit card purchases indicate a recovery in consumption, and there has been an increase in industrial exports and in exports of high-tech services. The Business Sector Business Tendency Survey indicates partial recovery in most industries. The economy still suffers from a lack of workers from the Territories (the construction industry in particular) and a lack of employment among many evacuees. As long as there is no escalation in the north and the Gaza arena shifts to low-intensity fighting, the trend of recovery is expected to continue. It is not really clear to what extent the negative GDP data will affect the interest rate decision next week, perhaps marginally it will support a reduction, even though the contraction of 19 percent in GDP was in line with the Bank of Israel's expectations. The interest rate decision (we see a tendency to cut) will be more affected by t...