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Further Slowdown

Decline recorded in all economic indicators (illustration) Photo: Shutterstock
Decline recorded in all economic indicators (illustration) Photo: Shutterstock

Treasury: Economy grew just 2.5% in Q4

Slowdown trend in Israeli economy continues in early 2013 with 2.8% decline in export of goods, 0.3% drop in labor force participation rate

Avital Lahav
Published: 03.11.13, 13:23 / Israel Business

New government gets chilly welcome: The slowdown trend in the Israeli economy continued in the beginning of 2013, according to the Finance Ministry's monthly Orot Adumim ("Red Lights") report.


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Apart for a slight improvement in the Stock Exchange's performance, a decline has been recorded in all economic indicators. The export of goods fell 2.8% in January, the export of services dropped by 4.5% in December, and the labor force participation rate was down 0.3%.


The economic slowdown trend is reflected in the growth rate, which stood at just 2.5% in the fourth quarter of 2012. The Treasury attributes the slowdown to Operation Pillar of Defense's effect on investments in the Israeli economy and the negative developments in the global economy.


Real estate declining too

According to the Treasury's Orot Adumim report published in December, the growth in the third quarter dropped to 2.9%, following a 3.1% growth in the second quarter and 3.4% in the first quarter. The revenue index of trade and services for September recorded a sharp decline, and a drop was also registered in the manufacturing production index.


Despite the disappointing figures, the purchasing managers index (PMI), which measures expectations in the economy for an improvement in the economic situation, recorded a 5.2% increase in January. The improvement in the index has continued for three months in a row, during which the index recorded an accumulated growth of 11.7%.


The economic slowdown restrained the inflation rate as well, with the consumer price index recording a 0.2% drop in January. The inflation rate in the past 12 months totaled 1.5%, way below the government target of 2% a year.


Although the Treasury notes that Israel's unemployment rate fell to 6.5% in January, the drop should be attributed more to the decline in the labor force participation rate than to the rise in the number of employed.


"The drop in the unemployment rate was reflected in a drop of 10,700 people in the jobless rate, alongside a minor increase of 600 people in the number of employed," the report says. "The rise in the number of employed Israelis is reflected in a rise in the number of part-time workers, which was partially compensated by a decrease in the number of full-time workers."


The drop in the demand for apartments continues in the housing market, alongside a slight improvement in building starts. According to the Treasury figures, January 2013 saw a 15% drop in the number of transactions, which were still 22% higher compared to the beginning of last year, which was affected by the social protest that led to a freeze in the housing market.


The fourth quarter saw an impressive rise in the number of building starts, but that increase only slightly compensated for the slowdown trend in the market, which has been felt since early 2012.


CBS: Economy grew by 3.1% in 2012

Meanwhile Sunday, the Central Bureau of Statistics (CBS) amended its first assessment of the economic growth in 2012. According to the amended figures, the Israeli economy grew by 3.1% in 2012, compared to 4.6% in 2011 and 5% in 2010.


Gross domestic product per capita (a figure reflecting the rise in the standard of living in the country) went up by 1.2% in 2012, following a 2.7% increase in 2011 and a 3.1% increase in 2010.


According to the CBS report, the economic slowdown stemmed mainly from a 5.7% drop in the consumption of consumer durables per capita, which was reflected mostly in a drop of more than 10% in the purchase of vehicles.


A slowdown was also felt in the investment in fixed assets, which increased by just 3.6% in 2012, following a 16% increase in 2011.


The slowdown is also reflected in a rise in the government deficit, which reached 4.7% of GDP, including the deficit in the government's capital account. The deficit stems from a 7.1% increase in the government's current expenses, compared to a 3.7% rise in the current income.



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