Economy grows 3.8% in 2016, economists expect slower 2017

Israel’s economy rebounded in 2016, growing 3.8% on the back of stronger exports, consumer spending and investment, although slower growth is expected in 2017.

The provisional growth estimate from the Central Bureau of Statistics on Thursday was higher than the 2.5% growth rate in 2015.

Earlier this week, the Bank of Israel raised its 2016 economic growth estimate to 3.5% from 2.8%.

The central bank sees a slowdown next year to 3.2% and growth of 3.1% in 2018.

Just a few months ago, 2016 was shaping up to be quite weak for Israel’s economy, especially when first-quarter growth was initially estimated at an annualized 0.8%. Along with uncertainty in financial markets following Britain’s Brexit vote, the Bank of Israel in June cut its 2016 economic growth forecast to 2.4% from 2.8%.

It also trimmed its 2017 estimate to 2.9% from 3%, although policy makers blamed the weak economy on a decline in exports in just a few large companies.

But first-quarter growth was ultimately revised up to an annualized 3.2%, followed by a 4.9% spurt in the subsequent three months.

Even though the pace of growth has picked up, policy makers have indicated the central bank’s benchmark interest rate is likely to stay on hold for the time being, since the annual inflation rate remained negative at minus-0.3% in November and is not expected to reach the government’s 1%-3% target until late 2017.

The Bank of Israel’s own economists project a 15-basis-point rise in the fourth quarter of next year to 0.25%.

“The picture being conveyed to us at the time is that the economy continues to grow at a solid pace and the labor market is strong, while the inflation environment remains very low,” Bank of Israel Governor Karnit Flug said on Monday after the bank held rates for a 22nd straight month.

After falling in 2015, exports, which account for about 32% of Israel’s economic activity, grew 3% in 2016. Private spending, which has been underpinning the economy of late, grew 6.1%, while investment in fixed assets bounced 11% after a stagnant 2015.

The central bank expects a moderation of private spending but stronger exports in 2017.

For the third quarter, the statistics bureau revised growth to an annualized 3.4% from a preliminary estimate last month of 3.2% on higher private spending and investment and a smaller decline in exports.

The shekel gained to 3.848 per dollar after the data was issued, up from Wednesday’s close of 3.86. (Reuters)