GDP contracted modestly in Q122, not really indicative of actual activity

ISRAEL - In Brief 16 May 2022 by Jonathan Katz

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GDP contracted modestly in Q122 The official GDP growth print came in at -1.6% saar in the 1st quarter of the year, following rapid growth of 15.6% in Q421 (and 8.2% growth in all 2021).We stress that that past two years of Covid and periodic Covid restrictions led to significant problems in measuring seasonality.Private consumption reportedly declined by 0.7% in Q122 following surging growth of 18.2% in the previous quarter. This was due to the sharp decline in consumption of durables, while consumption non-durables actually increased by 5.9% per capita.Public (mostly government) consumption declined by 7% following an increase of 12.9% in Q421 (end-of-year splurge in spending).Exports were mixed with industrial exports up 8.8% in Q122 following growth of 21.4% in Q421. Hi-tech service exports declined by 17.7% following growth of 37.5%, a rather volatile sector on the quarterly basis (Q122 was before any impact of significantly lower equity valuations on actual exports). Residential investments increased by 13.1% and business sector investments (non-residential construction) declined by 5.7%. The joker in the pack was the sharp increase in imports by 17.3% (much of this increasing inventory sharply), which reduced GDP growth. We note that “domestic demand” (without the trade account) actually increased by 8.3% saar. Bottom line: A more reflective state of the economy is the 9% y/y growth in GDP (Q122 to Q222), surpassing most DM economies. The bigger question of course, is how the MPC will view this data when considering next week’s rate decision. Recent indicators point to steady growth (as stated by Governor Yaron), unemployment is down to 3.1% in April, and credit...