May 16, 2017 / 12:44 PM / 2 months ago

UPDATE 2-Israel GDP grew 1.4 pct in Q1, data seen distorted by car tax change

3 Min Read

(Adds details, economist comments)

By Steven Scheer

JERUSALEM, May 16 (Reuters) - Israel's economy grew at its slowest pace in almost two years in the first quarter as investment and consumer spending fell, although exports jumped, with changes to the way cars are taxed heavily distorting the numbers.

In its preliminary release on Tuesday, the Central Bureau of Statistics said first-quarter growth was an annualised 1.4 percent, the lowest rate since April-June 2015. It also revised down its growth estimate for the fourth quarter of 2016 to an annualised 4.7 percent from 6.3 percent

A Reuters poll had forecast 3.7 percent growth for the quarter.

The fourth-quarter reading had been boosted by extraordinary factors including a spike in sales of vehicles that occurred before the tax hike -- which ties the tax payable at purchase to the car's carbon emissions -- at the start of 2017. This also negatively impacted the first three months of 2017.

Excluding net taxes on imports -- which eliminates much of the one-time auto tax effect -- gross domestic product grew an annualised 3.3 percent in the first quarter, the bureau said.

"That's the better number to look at," said Bank Leumi chief economist Gil Bufman, noting the auto tax issue had weighed on the private spending, investment and import components.

"The 1.4 percent (headline number) is quite misleading. The economy did better than that."

Israel's economic growth is projected to slow to a rate of about 3 percent this year from 4 percent in 2016.

The January-March quarter saw exports, which comprise more than 30 percent of Israeli economic activity, rise by 10.6 percent, their second straight quarterly gain.

After strong gains the first half of 2016, private spending slipped by 1.6 percent while investment in fixed assets declined by 5.6 percent, although investment in residential building grew. Imports fell 8.9 percent while government spending was up 2.5 percent.

The GDP data come a day after the bureau said Israel's annual inflation rate eased to 0.7 percent in April from 0.9 percent in March. (Reporting by Steven Scheer; Editing by Catherine Evans)

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