Israel's Q2 Economic Growth Revised Downward, Government Spending Drives Recovery

Israel's economic growth in the second quarter was revised downward by the Central Bureau of Statistics (CBS), with the annual growth rate adjusted from 15.4% to 14.9%. While the overall revision is minor, a closer look reveals a shift in the economy's drivers. Quarterly growth was slightly reduced from 3.6% to 3.5%.

Beneath the surface, the data indicates a weaker reliance on the business sector and a stronger dependence on government spending. Business sector product grew by 3.9% quarterly, a slight decrease from the previous estimate of 3.6% (annualized 15.4% vs. 16.6%). However, exports, excluding high-tech, showed slower growth than initially reported, rising 16.6% annually (3.9% quarterly) compared to 25.2% (5.8% quarterly) previously. Even total exports, including high-tech, grew at a slower pace.

A new CBS figure revealed that exports, after deducting offshore production, grew by only 8.7%. Investment in fixed assets also saw a downward revision, increasing by 4.1% instead of the previously estimated 6.3%. Investment in high-tech (ICT) grew by 152%, down from 181.4%, and investment in machinery and equipment was also lower than anticipated.

Conversely, government expenditures showed accelerated growth. Public spending increased by 22.2% in the second quarter, up from 19.5% in the prior estimate. Defense consumption expenditure also rose significantly, growing by 19.8% compared to 14.7%. This suggests that the economic recovery is heavily influenced by government initiatives rather than organic business sector growth, raising questions about the economy's reliance on offshore production and government spending.