Israel’s economy grew by an annualized 3% in the second quarter of 2021, according to the latest report by the Central Bureau of Statistics. This growth rate exceeded the forecasts by the Bank of Israel and the Ministry of Finance, which predicted a 2.7% growth for this year. The OECD also projected a lower growth rate of 2.9% for Israel in 2021.
The strong performance of the Israeli economy in the second quarter was attributed to the recovery of some sectors that were severely affected by the Covid-19 pandemic, such as tourism, aviation, hospitality, and transport services. These sectors saw a surge in demand as the country eased its lockdown measures and reopened its borders to vaccinated travelers.
The growth rate in the second quarter was also higher than the first quarter, which recorded a 4.2% annualized growth. However, this growth was mainly driven by the rapid vaccination campaign and the stimulus packages that boosted consumer spending and confidence. The second quarter growth reflected a more stable and sustainable economic activity, as well as a higher level of exports and investments.
GDP per capita and private consumption increase
Another positive indicator of the economic recovery was the increase in GDP per capita and private consumption. GDP per capita grew by an annual rate of 1.1% in the second quarter, while private consumption grew by 8% on an annualized basis from the first quarter. These figures suggest that Israelis are spending more on goods and services, both essential and discretionary, as their income and purchasing power improve.
However, not all categories of private consumption showed an increase. Spending on food, housing, fuel, and power declined by 0.6% in the second quarter, while spending on fashion, footwear, leisure, entertainment, and personal items fell by 11.2%. Spending on vehicles for private use also dropped by 14.5%. These declines indicate that Israelis are still cautious about their spending habits and are saving more for future uncertainties.
Israel leads OECD countries in growth
Israel’s economic performance in the second quarter was also impressive compared to other OECD countries. Israel recorded a 7.4% growth compared to the same quarter last year, which was the highest among all OECD members. Portugal came second with a 6.9% growth, followed by Spain with a 6.3% growth. Canada grew by 4.8%, while the US grew by 1.6%. Germany had a modest growth of 1.5%, while Austria experienced a contraction of 0.4%.
Israel’s remarkable growth in the second quarter was largely due to its successful management of the pandemic and its swift vaccination program, which allowed it to reopen its economy faster than other countries. Israel also benefited from its diversified and resilient economy, which has a strong focus on innovation and technology.
Challenges ahead
Despite the positive results in the second quarter, Israel still faces some challenges ahead that could hamper its economic recovery. The main challenge is the emergence of new variants of Covid-19, such as the Delta variant, which has caused a surge in infections and hospitalizations in recent weeks. Israel has reimposed some restrictions and launched a booster shot campaign to contain the spread of the virus and prevent another lockdown.
Another challenge is the political uncertainty and instability that could affect the fiscal policy and budget planning of the new government coalition. The coalition, which consists of eight parties with diverse ideologies and agendas, has yet to pass a budget for 2021 and 2022, which is crucial for maintaining public services and supporting economic growth.
A third challenge is the external environment and geopolitical risks that could affect Israel’s trade and security. Israel faces potential threats from Iran’s nuclear program, Hezbollah’s rockets, Hamas’ attacks, and regional conflicts. Israel also has to deal with trade tensions with China, its second-largest trading partner, as well as competition from other emerging markets.
