Israel: GDP growth plummets in the second quarter
GDP reading: GDP growth slowed markedly to 1.2% in seasonally adjusted annualized rate terms (SAAR) in the second quarter, from 17.3% in the first quarter. The reading undershot market expectations, and was driven by softer readings for private consumption, fixed investment and exports. Moreover, due to rapid population growth, output per person declined. Activity continued to be weighed on by conflict with Hamas and Hezbollah, and GDP remained below its pre-war level. On an annual basis, economic activity declined 1.9% in Q2, from the previous quarter’s 0.5% decrease.
Drivers: Household spending increased 12.0% in the second quarter, which was below the first quarter’s 23.5% expansion. Government spending picked up to a 8.2% expansion in Q2 (Q1: +2.6% SAAR). Meanwhile, fixed investment growth moderated to 1.1% in Q2, following 34.7% growth logged in the previous quarter. On the external front, exports of goods and services fell 8.3% on a SAAR basis in the second quarter, which was below the first quarter’s 3.6% contraction. In addition, imports of goods and services deteriorated, contracting 11.1% in Q2 (Q1: +36.5% SAAR).
GDP outlook: Our Consensus is currently for the economy to roughly regain its pre-war size in Q3, though growth will remain hampered by the ongoing conflict.