December 29, 2016 / 12:07 PM / 2 years ago

UPDATE 1-Israel economy grows 3.8 pct in 2016, slower 2017 expected

(Recasts with 2016 data, adds details)

By Steven Scheer

JERUSALEM, Dec 29 (Reuters) - Israel’s economy rebounded in 2016, growing 3.8 percent 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 percent growth rate in 2015.

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

The central bank sees a slowdown next year to 3.2 percent and growth of 3.1 percent 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 annualised 0.8 percent. Along with uncertainty in financial markets following the Britain’s Brexit vote, the Bank of Israel in June cut its 2016 economic growth forecast to 2.4 percent from 2.8 percent.

It also had trimmed its 2017 estimate to 2.9 percent from 3 percent, although policymakers 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 annualised 3.2 percent, followed by a 4.9 percent spurt in subsequent three months.

Even though the pace of growth has picked up, policymakers have indicated the central bank’s benchmark interest rate is likely to stay on hold for the time being, since the annual inflation rate remains negative at -0.3 percent in November and is not expected to reach the government’s 1-3 percent 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 percent.

“The picture being conveyed to us at the time is that the economy continues to grow at a solid pace and the labour 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 percent of Israel’s economic activity — grew 3 percent in 2016. Private spending, which has been underpinning the economy of late, grew 6.1 percent while investment in fixed assets bounced 11 percent after a stagnant 2015.

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

For the third quarter, the Central Bureau of Statistics revised growth to an annualised 3.4 percent from a preliminary estimate last month of 3.2 percent 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 from Wednesday’s close of 3.86.

Reporting by Steven Scheer; editing by John Stonestreet and Jane Merriman

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