Israel Q1 economic growth rebounds 14.1%, lifted by shopping, building

While inflation remains within the government's annual 1-3% target, the reading was above expectations of 2.5%, and along with the rebound in economic activity, could push back Bank of Israel rate cuts. The central bank, which forecasts economic growth of around 2% in 2024 as long as the war is contained and winds down this year without spreading to other fronts, next decides on interest rates on May 27.

Israelis resumed shopping and businesses invested in residential housing in the first three months of 2024, leading to a sharp economic rebound after growth was hit late last year at the outset of Israel's war in Gaza. The Central Bureau of Statistics said in an initial estimate on Thursday that gross domestic product (GDP) grew an annualised 14.1% in the first quarter from the prior three months, just shy of a Reuters consensus of 15.3%.

War has raged in Gaza since Palestinian group Hamas' Oct. 7 cross-border attack on southern Israel, leading to a 21.7% annualised contraction in fourth quarter GDP, revised from a prior estimate of a 21.0% shrinkage in economic activity. The recovery in the January to March period was led by large increases in private spending and investment, both of which slid in the fourth quarter.

"Still, the private consumption data and investment in fixed assets are affected by the security situation and have not returned to the level before the outbreak of the war," the bureau said. Data published on Wednesday showed Israel's annual inflation rate rose to 2.8% in April from 2.7% in March. While inflation remains within the government's annual 1-3% target, the reading was above expectations of 2.5%, and along with the rebound in economic activity, could push back Bank of Israel rate cuts.

The central bank, which forecasts economic growth of around 2% in 2024 as long as the war is contained and winds down this year without spreading to other fronts, next decides on interest rates on May 27. Private spending, more than half of Israel's economic activity, rose 26.3% in the first quarter after a similar decline in the fourth quarter when the mood in Israel was sombre and people curtailed purchases other than on basics.

Investment in fixed assets grew 49.2% in the quarter, led by a 290% surge in residential building, after a 69% drop in the last three months of 2023. Exports remained weak and fell another 11%, while imports jumped some 33% and state spending rose 7.1%.

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