GDP numbers look better than the headline print

ISRAEL - In Brief 18 May 2021 by Jonathan Katz
The Israeli economy contracted by 6.5% saar in Q121, following growth of 6.3% in the previous quarter. This headline print looks disappointing (we were actually expecting a modest increase in growth), but the devil is in the details: In the beginning of 2021, taxes on new vehicles (hybrid) increased significantly. This resulted in a surge in vehicle imports in December 2020, and a subsequent contraction in Q121. Imports of new vehicles by households declined by 86% in Q121 (following an increase of 136% in Q420). On the investment side, investments by the business sector in vehicles declined by 90% in Q121 (mostly leasing companies).We note that taxes on imports are counted as GDP (never did quite understand why), and vehicles in Israel are heavily taxed. Therefore, it is more accurate to look at GDP growth excluding import taxes which declined by only 2.5% in Q121 following growth of 3.0% in Q420. Some good news from the GDP data: Private consumption excluding new vehicles increased by 4.6% in Q121. This is a decent print taking into account that the third closure was only gradually lifted around the middle of February.Investments in machinery and equipment increased by 53%.Manufacturing exports increased by 27%, and export of hi-tech services increased by 26%.Public consumption did contract by 24% in Q121, but this follows an increase of 27% in Q420. This is supposedly seasonally adjusted data, but the government spending often shifts sharply ccording to fiscal restrictions. In short, the Israeli economy has expanded rapidly since mass inoculation and the opening of the economy. Hopefully, this pace will not face a headwind from a prolonged escalation of violence in ...

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