Israel’s economy grew a pitiful 1.2pc in last quarter, inflation grows in July amid raging attacks against Palestinians

JERUSALEM, Aug 18 — Israel’s economy grew less than expected in the second quarter of 2024, extending a period of volatility since the start of war in Gaza, but the weakness is likely not enough to prompt a central bank rate cut next week given rising inflation.

The Central Bureau of Statistics said in an initial estimate today that gross domestic product (GDP) grew by an annualised 1.2 per cent in the April-June period, below a Reuters consensus of 4.4 per cent. On a per capita basis, GDP fell 0.4 per cent in the quarter.

Overall growth was led by gains in consumer spending (12 per cent), investment in fixed assets (1.1 per cent) and government spending (8.2 per cent), offsetting an 8.3 per cent decline in exports.

First-quarter GDP was revised to 17.3 per cent annualised from a prior estimate of 14.4 per cent, bouncing back from a contraction of 20.6 per cent in the fourth quarter of 2023.

The war has raged in Gaza since the Oct. 7 cross-border attack on southern Israel by Hamas-led Palestinian militants.

Over the first half of 2024, Israel’s economy grew 2.5 per cent at an annual rate versus 4.5 per cent in the same period in 2023, according to the statistics bureau.

“The economy is having difficulty recovering from the war, mainly because of supply and not demand problems,” said Leader Capital Markets Chief Economist Jonathan Katz.

He noted that the lack of Palestinian workers since the Gaza conflict erupted was preventing a full recovery in investment in residential construction.

Figures issued on Thursday showed a spike in the inflation rate to 3.2 per cent in July from 2.9 per cent in June, pushing it above the government’s annual inflation target of 1-3 per cent.

The Bank of Israel next decides on rates on Aug. 28.

After cutting its benchmark interest rate in January, the central bank left the rate unchanged at subsequent meetings in February, April, May and July, citing geopolitical tensions, rising price pressures and looser fiscal policy due to the war.

“Since the weak growth figures stem from supply and not demand issues, they are not expected to support interest rate cuts, in particular against the background of signs of acceleration in inflation in the July CPI and a high level of geopolitical risks,” Katz said. — Reuters