Treasury warns growth rests on new car sales

New cars at Ashdod port Photo: Tamar Matsafi

Car purchases accounted for much of the increase in both private consumption and investments in 2016, the Finance Ministry says.

The initial growth estimate for 2016 published this month by the Central Bureau of Statistics surprised many people in the economy. The figures indicated a 4% growth rate last year, much higher than in the preceding years, and also high in comparison with many development countries, where growth rates have been much lower. In his analysis published today of the main economic trends that contributed to the high growth rate, the Ministry of Finance chief economist concluded that two substantial, but temporary, factors affected the growth rate in 2016: increased purchases of new cars and the upgrading of the Intel fab.

As in the preceding years, private consumption (mainly of durable goods) accounted for 3.7% of GDP in 2016, while investments accounted for 2.7%. The Ministry of Finance explains that these two factors were influenced to a great extent by one main cause - increased purchases of vehicles. Consumption of vehicles for private use affects private consumption in the economy, while purchases of vehicles by leasing companies affects the amount of the economy's investments, according to the Ministry of Finance.

The Ministry of Finance says that the massive buying of vehicles is not confined to Israel; it is taking place in many developed countries. At the same time, the chief economist warns that this will not last forever, explaining that the effects of increase vehicle purchases on GDP growth are only temporary. "Even given the global trend, estimates are that the high rate of vehicle purchases in Israel will not continue for long, and the same is true of its effect on growth."

While increased purchases of vehicles in other Western countries (in Portugal and Ireland, for example) are following an economic crisis, the Ministry of Finance notes that this is not the case in Israel. "Part of the explanation for the relatively rapid rise in in Israel many be the fact that the motorization rate in Israel is lower than in most developed countries, and even in comparison with countries having a similar per capita GDP as Israel. In Israel, the number of vehicles per 1,000 people is 300, compared with an average of 500 in the developed countries. At the same time, given the global trend towards a rapid increase in purchases of vehicles, it is unreasonable to assume that this trend will continue for long in Israel, and the same is true for its effect on growth," the review stated.

Published by Globes [online], Israel Business News - www.globes-online.com - on February 26, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

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New cars at Ashdod port Photo: Tamar Matsafi
New cars at Ashdod port Photo: Tamar Matsafi
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