GDP DATA FOR 2015

March 14, 2016

Bottom line: The first full assessment of GDP for 2015 shows growth of 2.5%, in line with previous estimates. However, and as predicted here last month, fourth quarter growth, at 3.9% on an annualised basis, was much stronger than the initial estimate.  The strong positive swing in Israel’s terms of trade added 2.3% to real income over the year — thereby almost doubling the effective growth rate.

  • The 2.5% growth rate in 2015 was identical to that of 2014 and below the 3.3% rate achieved in 2013. Business sector GDP was also identical to the previous year, at 2.3%, and down on 2013.
  • Last year ended on a strong note, with growth in all areas, including a rebound in exports, a surge in imports and higher levels of investment and consumption.
  • The key to the strong performance of the Israeli economy in 2015 is that real income rose by 4.8% — the strongest showing since the global crisis. GDP growth of 2.5% was augmented by a further 2.3% addition to real income, stemming from a strong positive swing in the terms of trade. (In simple terms, this means that import prices fell faster than export prices.)
  • This boost to real income fueled higher consumption and investment — and hence imports — as well as resulting in higher tax revenues and hence a lower-than-planned budget deficit, rising employment and wages and enabling a more expansionary fiscal policy.
  • Nevertheless, exports fell by 3.2% in 2015, although they rebounded in the final quarter.
  • The economy’s strength in Q4 and the maintenance of the positive trends at work into early 2016 suggest that growth is likely to remain above 3% in the first, and possibly also the second, quarter of 2016.

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