Israel’s GDP grew by 1.2% despite the Gaza war
BUSINESS: Israel’s economy grew less than expected in the second quarter of 2024, continuing a period of instability since the start of the war in Gaza, but the weakness is not enough to prompt the central bank to cut interest rates next week given rising inflation. Gross domestic product (GDP) grew 1.2% annualized in the April-June period, below the Reuters consensus of 4.4%, the Central Bureau of Statistics said in a preliminary estimate on Sunday. On a per capita basis, GDP fell 0.4% in the quarter. Overall growth was led by a rise in consumer spending (12%), investment in fixed assets (1.1%) and government spending (8.2%), which balanced an 8.3% drop in exports. First-quarter GDP was revised to 17.3% annualized from a prior estimate of 14.4%, bouncing back from a 20.6% contraction in the fourth quarter of 2023.
War has raged in Gaza since Hamas-led Palestinian militants launched a cross-border attack on southern Israel on October 7.
In the first half of 2024, Israel’s economy grew at a 2.5% annual rate, compared with 4.5% in the same period in 2023, according to the Bureau of Statistics. “The economy is having difficulty recovering from the war, mainly due to a supply problem, not a demand problem,” said Jonathan Katz, chief economist at Leader Capital Markets.
He said a shortage of Palestinian workers since the Gaza conflict began is preventing a full recovery in investment in residential construction.
Data released on Thursday showed the inflation rate rose from 2.9% in June to 3.2% in July, taking it above the government’s annual inflation target of 1-3%.
The Bank of Israel will next decide on rates on August 28. After cutting its benchmark interest rate in January, the central bank kept rates unchanged at meetings in February, April, May and July, citing geopolitical tensions, rising price pressures and loose fiscal policy due to the war. “Since the weak growth data are due to supply, not demand, they are not expected to support a rate cut, especially against the backdrop of signs of accelerating inflation in the July CPI and elevated geopolitical risks,” Katz said.
