1.4% GDP drop added to "Israel`s" adventure bill against Hizbullah

Source: MarketWatch, 14-11-2006
TEL AVIV - "Israel's" gross domestic product fell 1.4% in the third quarter from the second quarter, reflecting sharp drops in exports and imports due to the country`s summer war with the Lebanese group Hizbullah.
A big drop in tourism services hurt the export number "because everything was paralyzed" during the conflict, said Shlomo Maoz, chief economist at Excellence Nessuah.
About a quarter of the population was directly affected by Hizbullah`s rocket attacks, and many civilians in and out of the business sector were called into the military during the five-week war.
The overall GDP figure was in line with his expectations.
"Year on year, GDP was up 4.8%. That`s a very good number," Maoz said.
The Tel Aviv Stock Exchange bounced in the afternoon, with the benchmark TA-25 index rising as much as 0.4%, then touching a low of down 0.3%. It`s now down 0.15%.
The Lebanon war is "viewed as a one-time shock but still negative for sentiment" on the TASE, said Avi Weinreb, trader at Clal Finance Batucha in Tel Aviv.
A Central Bureau of Statistics report showed that exports of goods and services slumped 19.8% in the third quarter compared with the second period. Adjusted to exclude exports of diamonds and production from startup companies, exports fell 10.6.
The import side was hit even harder, falling fully 26.1% in the third quarter. Adjusted to exclude defense, ships, aircraft and diamonds, imports fell 14.5%.
GDP in the business sector fell 5.6%; excluding startups, the figure fell 5.4%.
"Israeli" consumers spent 3.4% more in the quarter. But per capita, they spent just 1.5% more, and excluding durable goods, their spending dropped 1.4%.
The "Israeli" consumer tends to pull in his horns during times of conflict, many analysts say. "The country is like a small village," Maoz says. "Everyone knows everyone else. ... `Israelis` don`t have the mood" for spending when the country is at war.
Within the report is a particularly telling figure, that of government consumption expenditure in the quarter. The figure rose 13.6% -- but excluding defense (War) spending, the figure rose just 1.5%.
Maoz still sees the economy growing 4.5% in 2006. On Monday, the Finance Ministry lifted its expectations for 2006 economic growth to 4.6% from 4.3%, reflecting smaller damage from the war than it had previously estimated.
Given the initial indications for the fourth quarter, Maoz says, "All in all, we`ve reached the same level as before the war."
Robert Daniel is MarketWatch`s Middle East bureau chief, based in Tel Aviv.