JERUSALEM, Sept 16 (Askume) – Data on Monday showed Israel’s economy grew at a slower pace than previously expected in the second quarter, as the Gaza Strip’s war against Palestinian Islamist group Hamas hurt growth and increased inflation pressures.
Despite slow economic growth, the Bank of Israel has been unable to lower interest rates as prices rise, the labor market tightens and the government raises spending to finance its 11-month war.
Analysts said that unlike the United States and the European Union, Israeli data suggests a rate cut is on the way.
“A higher inflation path and elevated geopolitical and budget uncertainty raise the risk that monetary easing could be delayed until the second half of 2025,” said Barclays economist Zalina Alborova.
In its second forecast, the Central Statistics Office said gross domestic product grew 0.7% annually between April and June, down from 1.2% a month earlier.
An increase in consumer and state spending and fixed asset investment supported the economy, but exports fell.
As the economy recovered from a sharp contraction when the war broke out in the fourth quarter of 2023, GDP growth slowed slightly to 17.2% in the first quarter from the previous 17.3%.
Data released on Sunday showed annual inflation rose to 3.6% in August, higher than market expectations of 3.2% and above the government’s target rate of 1% to 3%.
The bureau also said Israel’s unemployment rate remained steady at 2.6% in August.
After keeping the benchmark interest rate (ILINR=ECI) at 4.5% for the fifth consecutive day on Aug. 28 , central bank officials said a rate cut was unlikely before next year.
The main reasons for the rise in inflation are supply disruptions, foreign travel, high prices of fresh vegetables, especially tomatoes, and rising cost of housing.
“We don’t think this will provide much relief to the Bank of Israel,” said Citi economist Mitchell Ness. “The next step will be to lower the risk.”
