By David Rosenberg
Aug. 24 (Bloomberg) -- Israel's gross domestic product grew faster than expected in the second quarter, as booming chemical and fertilizer sales drove exports.
The economy expanded at a 4.2 percent annualized rate in April-June, the Jerusalem-based Central Bureau of Statistics said in an e-mailed report today. That beat the median forecast of 4 percent from five economists surveyed by Bloomberg. Still, growth was the slowest since the 2006 war in Lebanon, easing from 5.6 percent in the first quarter.
``A 4.2 percent rate doesn't really amount to a slowdown, it's actually a good pace of growth,'' Vered Dar, an economist at Psagot Investment House Ltd., said in an interview. ``There will be real slowdown in second half.'' Today's figures don't include ``anything that changes my expectations,'' he said.
Israel's economy this year will probably expand at its slowest pace since 2003, with the Bank of Israel in June forecasting growth of 4.2 percent. That would still leave Israel ahead of the world's developed economies, which the International Monetary Fund said July 17 will grow 1.7 percent this year.
Israel's business GDP grew 4.9 percent in the second quarter from 6.5 percent in the first.
Goods and Services
Exports of goods and services grew an annualized 6.6 percent in the quarter, slowing from 11.2 percent in the first quarter, the bureau said. Imports of goods and services dropped at an 8.6 percent rate, the first decline in five quarters.
Consumer spending fell at a 3.6 percent annual rate, compared with an increase of 9.3 percent in the previous month. The decline in consumer spending was led by a 46 percent annual decline in purchases of durables, such as electronics, following two quarters of double-digit growth.
``The first quarter's growth rate was very, very strong, so this past quarter we saw something of a correction,'' Eyal Raz, head of economics at Bank Leumi Le-Israel Ltd., said by phone. ``The pace of consumer spending growth in the first quarter wasn't sustainable.''
While the shekel reached its strongest against the dollar in about 12 years on July 9, Israel's chemical industry has increased sales abroad because of strong global demand for agrochemicals and fertilizers.
Export Sales
Israel Chemicals Ltd., which harvests Dead Sea minerals to make fertilizers and flame retardants, said Aug. 20 that its second-quarter sales more than doubled from a year earlier to $2.08 billion. Revenue at Makhteshim Agan Industries Ltd., the biggest maker of generic agrochemicals, climbed 26 percent to $682.3 million in the quarter. Both companies sell almost all their products abroad.
Investment in fixed assets edged down at a 0.5 percent rate after rising 7.5 percent in the previous quarter, the bureau said.
GDP grew at a 5.3 percent pace in the first half of the year, the bureau reported. Dar said she expects exports and consumer spending to slow in the second half while imports will probably rise because they declined ``too much'' in the second quarter. Dar expects GDP to grow about 4 percent for the year.
Israel's index of leading economic indicators, after rising 0.7 percent in the second quarter, declined a preliminary 0.3 percent in July as exports fell, marking the first drop since February 2005.
Draft Budget
Finance Minister Ronnie Bar-On, who is seeking Cabinet approval for his 2009 draft budget today, said the first-half growth rate showed that the government's fiscal and economic policies were working and shouldn't be changed.
The junior partners in Prime Minister Ehud Olmert's coalition oppose the cuts in 2009 spending that Bar-On plans.
``Even though the numbers are encouraging, everyone must remember that the global recession and expected slowdown in Israeli economic growth in 2009 demands that we keep to responsible economic policies,'' Bar-on said in an e-mailed statement today.
Although the shekel has lost about 8 percent of its value since the central bank increased its daily purchases of dollars on July 10, the currency is still up about 16 percent from the same time a year ago.
The strong shekel, which may cool inflation, and ``relatively weak'' GDP growth may prompt the Bank of Israel to hold its key lending rate unchanged when it announces its September monetary program tomorrow, Harel Finance Ltd. said in a e-mailed report today.
Eleven out of 20 economists polled by Bloomberg forecast a quarter-point increase in the base rate to 4.25 percent, with the rest saying it will remain unchanged. The rate will be announced at 6:30 p.m. local time tomorrow.
The yield on the government's Shahar bond due in 2010 fell 1 basis point to 5.62 percent today.
To contact the reporter on this story: David Rosenberg in Jerusalem at drosenberg1@bloomberg.net
Last Updated: August 24, 2008 09:36 EDT
