JERUSALEM: Israel's economy expanded at its strongest pace in more than two years in the second quarter, boosted by consumers seeking to spend ahead of a rise in value added tax (VAT), large government spending and the start of natural gas production.
Gross domestic product grew at an annualised rate of 5.1 percent in the second quarter, the Central Bureau of Statistics said on Sunday in its preliminary estimate. That was well above a 3.6 percent increase forecast in a Reuters poll of economists and a 2.7 percent pace in the first quarter.
As part of the 2013-2014 state budget, VAT rose to 18 percent from 17 percent at the start of June, which led to a buying frenzy of homes, cars and other items in April and May and fueled a 6.7 percent surge in private spending in the second quarter - higher than a 5 percent rise in the prior three months.
"If the rise of 6.7 percent in private spending is right, then the economy is very, very strong," said Ofer Klein, head of economics and research at Harel Insurance and Finance, noting that quarterly numbers are volatile and subject to revision.
He added that a change of the statistics bureau's methodology also likely pushed the GDP number higher.
Natural production started at the end of March and analysts said this has helped the economy but that it was hard to immediately quantify the impact.
Growth is projected at 3.8 percent this year including natural gas production. The economy grew 3.4 percent in 2012.
For the first half of 2013, the economy grew 3.4 percent, compared with a 3.5 percent rate in the last six months of 2012 and 3.1 percent in January-June last year.
The latest GDP data could keep the Bank of Israel on hold for the time being. The central bank lowered its benchmark interest rate twice in May to help encourage growth and weaken the shekel to help exports.
The bank held rates in June and July, citing moderate economic growth. It had said that data last month suggested second-quarter growth similar to the first quarter.
The next decision is slated for August 26. Exports which account for some 40 percent of Israel's economic activity - rose 1.2 percent in the April-June period for a second straight quarterly rise.
Government spending grew 8.3 percent while investment in fixed assets fell 6.3 percent for its fifth straight drop.
The growth rate in the quarter was the highest since a 5.2 percent rate in the first quarter of 2011. First-quarter GDP growth was revised to 2.7 percent from 2.9 percent.
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