Israel’s second-quarter economic growth will be revised higher from the annualized 0.3 percent reported last week, according to the chief economist at the country’s largest bank.
“We were surprised and a bit disappointed by second-quarter growth, but monthly indicators suggest that the economy is still growing at a rate close to 3 percent,” said Bank Hapoalim’s Leonardo Leiderman in a phone interview. “The economy is operating at close to full employment and there has been some shekel depreciation recently,” a development that will help exports, he said.
Growth slowed from 2 percent in the first quarter as exports sank more than 12 percent, confounding the projections of five economists surveyed by Bloomberg who had predicted a median increase of 2.7 percent. Analysts have attributed the disappointing performance in part to a strike at Israel Chemicals Ltd. that crimped exports.
Exports have also been hurt by sluggish global demand. Worries about a possible global slowdown mounted after China reported its manufacturing was at the lowest level in more than six years. Stocks in Tel Aviv plunged on Sunday after last week’s tumble in the U.S. and Europe, Israel’s largest trading partners. Bank Leumi Le-Israel, the nation’s second-largest lender, cut its 2015 growth forecast for the economy on Aug. 20 by half a percentage point to 2.6 percent.
The Bank of Israel, led by Governor Karnit Flug, has also been struggling with persistently low inflation. Although price declines moderated slightly in July, the market expects an average inflation rate of 0.5 percent per year for the coming two years, Leiderman added. That’s below the floor of the government’s target range of 1 to 3 percent.
Leiderman, siding with 15 of 17 economists polled by Bloomberg, predicted the central bank will hold the benchmark interest rate at its record low 0.1 percent. He expects it to remain at that level through the end of the year, he said.