Growth accelerates in Q216

ISRAEL - In Brief 16 Aug 2016 by Jonathan Katz

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GDP growth for the second quarter of this year surprised on the upside, reaching 3.7% SAAR; almost double market expectations. Growth was rather broad based with private consumption up 9.5%, public consumption up 8.7%, exports up 3.8%, residential investments up 2.9% and business sector (non-residential) investments rose by 5.2%. Imports rose by 22.1% (SAAR). First quarter GDP was revised upwards to 2.2% from 1.7% in the previous (third) estimate and up from 0.8% in the first estimate.Quarterly GDP numbers tend to be rather volatile and often revised significantly. Nevertheless, these robust numbers are in line with the sharp increase in employment growth and decline in unemployment. With growth in the first half of the year at 2.9% accelerating from 2.0% from the second half of 2015, the Israeli economy appears to be in pretty good shape. GDP growth y-o-y is up 2.9% in Q2 accelerating from 2.0% from the previous quarter. The BOI claims that the growth potential is somewhere in the 2.5% range, if not lower. The BOI GDP forecast for 2016 will most likely be revised upwards from 2.4% (released in June). Implications: The output gap (a number never published by the BOI) is probably rapidly closing, as Israel approaches full employment. With strong private consumption demand (9.5% in Q2 following 6.2% in Q1 SAAR) on the back of real wage and employment growth, some inflationary pressure should become more visible. July's higher-than-expected CPI could be an initial sign of that, especially the sharp increase in housing rental prices. Nevertheless, with pressure for further ILS appreciation on strong fundamentals and the MOF moving on all fronts to reduce the cost of living...