Israel: Cooling a bit

3 min

Seasonally adjusted real GDP growth accelerated to +0.6% q/q in Q3 from +0.3% in Q2. But in unadjusted y/y terms, GDP growth slowed down to +3.1% in Q3 from +3.7% in Q2. Private consumption grew more moderately by +2.9% y/y in Q3 (+3.5% in Q2) while government consumption surged by +5.8% (+3.5% in Q2). Meanwhile, fixed investment dropped by -1.2% (+4.9% in Q2) due to a slump in residential construction. External trade activity weakened markedly, with exports up by +3.4% y/y (+7.8% in Q2) and imports by +2.4% (+9.7% in Q2) so that net exports added +0.3pp to Q3 growth (-0.5pp in Q2). We expect growth of around +3% y/y in Q4, taking the full-year expansion to +3.5% in 2018. The tentative forecast for 2019 is +3.3%. Meanwhile, the Bank of Israel (BoI) raised its key policy rate by 15bp to 0.25% this week, the first rate hike since June 2011. The move was a small surprise as head­line inflation had stabilized at 1.2% y/y in October, just above the lower bound of the BoI’s 1-3% target range. In 2019, we expect average inflation of 1.4% and two more rate hikes.