Israel Second-Quarter Growth Disappoints as Exports Decline

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Israel’s economic growth slowed in the second quarter, confounding projections as exports tumbled more than 12 percent, fueling speculation that the central bank will keep interest rates near zero longer than anticipated.

Growth slowed to an annualized rate of 0.3 percent in the April-June period from 2 percent in the previous quarter, the Central Bureau of Statistics said. Five economists surveyed by Bloomberg had predicted a median increase of 2.7 percent.

The statistics bureau said the “moderate” rise was due in part to a 12.5 percent drop in exports. Bonds reversed losses after the data, signaling that “interest rates will probably stay lower for longer,” Oren Ossad, head of fixed-income desk at Excellence Nessuah, an Israeli brokerage, said by phone.

The Bank of Israel research department said in June it expects the benchmark rate to start increasing gradually next year from the current 0.1 percent level. Policy makers have reduced borrowing costs 13 times since 2011 to weaken the shekel and shore up exports, which account for about a third of Israel’s $280 billion economy.

All 11 economists surveyed by Bloomberg expect the central bank to keep the base rate unchanged in its next meeting on Aug. 24.

Yields Fall

The yield on the government’s debt due March 2024 fell three basis points to 1.99 percent at the close in Tel Aviv, after rising as much as four basis points earlier on Sunday.

“I don’t expect the Bank of Israel to take monetary steps for now,” said Yaniv Pagot, chief strategist at Ramat Gan, Israel-based Ayalon Group Ltd.

Annual consumer prices fell for the 11th month in a row in July, declining 0.3 percent. Prices rose 0.2 percent on the month, led by increased costs for housing and produce.

Finance Minister Moshe Kahlon took office this year promising to reduce the cost of living. Prime Minister Benjamin Netanyahu’s cabinet approved Kahlon’s first budget and spending plan for 2015-2016 that includes measures aimed at lowering food and housing costs.

The spending plan, which must now be confirmed by parliament, was designed to generate growth of about 4 percent, according to Netanyahu, compared with the central bank’s forecast of 3 percent this year.

(An earlier version of this story was corrected to fix the time period of the data.)