The figures on the slowdown in economic activity were expected, although the extent of the slowdown was a surprise. After the decline in activity in the second quarter and 50 days of fighting in Operation Protective Edge, which economists believe cut growth by 1-1.5%, it was reasonable to expect poorer economic data in the third quarter of the year. Indeed the picture indicated by the Central Bureau of Statistics' figures is bad: continued decline in investment, exports, and business product. The only bright spot is the increase in private consumption, with an emphasis on the rise in purchases of durable goods, which probably indicates expectations of a recovery later in the year.
The question of what will happen in the fourth quarter of the year has become more critical than ever. A further drop in output next quarter will officially put the economy in a recession. Significant positive growth, on the other hand, will prove that the economy is still strong enough to overcome the combination of crises in a single quarter.
Economist Dr. Zeev Rotem, who predicted the economic downtrend a year ago, said today, following the publication of the figures, that he believed the economy would grow around 1% this year. Rotem now says that the fourth quarter will be affected on the one hand by positive corrections, following emergence from the effects of Operation Protective Edge, but on the other hand, also by continuation of the negative trends that characterized economic activity over the past year: mainly a downtrend in investment and exports and contraction of industrial infrastructure. In addition, Dr. Rotem says that if the security situation worsens, further damage to economic activity is expected, along the same lines as the conditions that prevailed during the Intifada.
Rotem noted that the most alarming trend in the data published today was the continuation of the downturn in investment in fixed assets. Investment in economic sectors slid 4.4%, following decreases of 5% in the second quarter and 9% in the first quarter. He said, "The decline in investment is causing a slowdown in creation of new jobs in the manufacturing sector, which is the key to growth. The decline in investment in residential construction is also continuing, after falling in the two preceding quarters, which is liable to reduce the supply of housing and cause renewed pressure on housing prices, which recently stopped rising."
With respect to exports, Rotem said that on the one hand, the increase in the shekel-dollar exchange rate was having a positive effect, but on the other hand, most of the increase was in exports of services, while industrial exports were still not recovering.
Published by Globes [online], Israel business news - www.globes-online.com - on November 16, 2014
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