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Israeli Growth Unexpectedly Accelerates to 4.7%

Israeli economic growth unexpectedly accelerated to an annualized 4.7 percent in the second quarter, its fastest pace in more than two years, as exports and consumer spending increased.

The expansion rate rose from a revised 3.6 percent in the first quarter, the Jerusalem-based Central Bureau of Statistics said today on its website. The median forecast of six economists surveyed by Bloomberg was for growth of 2.9 percent. The statistics bureau reported on July 18 that the economy grew a preliminary 3.4 percent in the first three months.

“This is really an economy running on all pistons,” said Jonathan Katz, a Jerusalem-based economist for HSBC Holdings Plc, who forecast 3.7 percent growth. “Down the road, the Bank of Israel will have to increase interest rates. This is clear to them, clear to everyone, and the pace may surprise many.”

The Israeli economy’s rebound from the global financial crisis has been powered by exports, which make up almost half of gross domestic product. Sales abroad, excluding ships, aircraft and polished diamonds, increased in July to $3.8 billion, the most in two years, the statistics bureau said on Aug. 12.

‘Renewed Growth’

The benchmark TA-25 stock index rose after the news was released, increasing 0.1 percent to 1,152.10 at 2:27 p.m. The index closed at 1,152.63. It has gained about 25 percent in the past 12 months, led by Perrigo Co., the world’s largest maker of non-prescription, store-branded drugs, which more than doubled.

Bank of Israel Governor Stanley Fischer said on June 29 that he expects growth of about 3.7 percent this year, though the depreciation of the euro is likely to hurt sales to Europe and exports that compete with European products.

Europe’s economy expanded 1 percent in the second quarter from the previous three months, more than economists forecast, led by the fastest growth in Germany in two decades, the European Union’s statistics office in Luxembourg said on Aug. 13.

Israeli consumer spending was up 8.7 percent in the second quarter, the bureau said.

Housing Prices

Fischer raised the benchmark interest rate for the first time in four months at the end of July by a quarter-point to 1.75 percent, citing a rapid increase in housing prices. The next rate decision is on Aug. 23.

Unemployment is likely to drop to 7.3 percent this year, from 7.6 percent in 2009, the Finance Ministry said on June 6. Next year, unemployment is likely to decline to 6.8 percent, the ministry said.

Israel’s economic recovery began in the second quarter of last year, when the economy expanded a revised 1 percent. Growth picked up in the third quarter to 3.9 percent.

Inflation eased in July to an annual 1.8 percent, its slowest pace in more than 2 1/2 years, the Central Bureau of Statistics reported yesterday.

“With the very low inflation reading from yesterday, we think the Bank of Israel will stick to its gradual rate hike schedule for now,” Barclays Capital said today in an e-mailed statement.

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