​Growth revised upwards in Q116, PMI declines in June

ISRAEL - In Brief 17 Jul 2016 by Jonathan Katz

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GDP growth in Q116 was revised to 1.7% SAAR from 1.3% in the previous estimate. The main revision was export growth which currently reflects expansion of 1.6%, up from the 1.1% contraction in the second revision. This was mostly due to the updated CBS survey of service exports, conducted once a year. Service exports (excluding start-ups and tourism) expanded in Q1 by 3.3%, revised up from a 2.7% decline in the second estimate. Private consumption growth was also revised upwards to 5.0% from 4.8% while capital investments were revised downwards to 14.6% from 16.2%. This upward growth revision is more in line with economic indicators which pointed to fairly rapid economic expansion in the first quarter of the year. Employment growth was strong and fiscal tax collection numbers were stronger than expected. Nevertheless, with global demand still fairly weak and the tradable sector suffering from a fairly strong level of the shekel (as underlined by recent BOI monetary statements), industrial exports (which make up 15% of GDP) contracted by 7.9% in Q1. This contraction was strongly impacted by the downsizing of several large firms. Despite the upward growth revision in Q1, growth has slowed from last year's 2.5% pace and 3.5% in Q415, mostly on the back of weak exports. Israel is also suffering from a decline in productivity which, according to the BOI macro forecast, is expected to be negative this year (-0.5%) following 0.3% in 2015. Poor productivity is weighing down on growth as the economy is approaching full employment (4.8% unemployment in May). With industrial exports contracting sharply in Q2 as well, GDP growth in Q2 will most likely resemble that of Q1, despite s...