Economy loses notable momentum in the fourth quarter

GDP reading: GDP growth moderated to 2.5% in seasonally adjusted annualized rate terms (SAAR) in the final quarter of 2024 from 5.3% in the third quarter, below market expectations. As such, the economy remained smaller than before the start of war with Hamas in late 2023.

Softer investment growth leads slowdown: Private consumption growth improved to 9.5% SAAR in Q4 compared to a 8.9% expansion in Q3. Government consumption bounced back, growing 7.6% in Q4 (Q3: -3.3% SAAR). In contrast, fixed investment growth slowed to 14.7% in Q4, following the 29.2% increase recorded in the previous quarter. On the external front, exports of goods and services growth hit an over two-year high of 6.2% in the fourth quarter, up from the third quarter's 3.6%. In addition, imports of goods and services growth picked up to 17.2% in Q4 (Q3: +15.7% SAAR).

GDP outlook: Economic growth should accelerate slightly in Q1, buoyed by the recent ceasefire agreements with Hamas and Hezbollah.

Panelist insight: Digging deeper into the latest data, Goldman Sachs analysts said: “According to the seasonally adjusted quarterly data, Israeli growth remains -0.7% below its Q3-2023 (pre-October 7th) level, but there is a significant divergence across the components of GDP. Household consumption is +5.6% higher than in Q3-2023 and (civilian) government consumption is +10.6% higher. Strong household and government consumption is being offset by contracting investment, especially in construction – which remains 20.2% below its pre-October 7 level. Construction spending has been held back by a combination of the uncertainty created by the conflict and a large labour supply constraint that has particularly affected the construction sector (owing to Israel’s labour force losing access to citizens on active military duty and non-resident workers from Gaza and the West Bank).”

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