Israel economy grows 2.6 percent in 2014, seen faster in 2015

By Steven Scheer JERUSALEM (Reuters) - Israel's economy grew an estimated 2.6 percent in 2014, its slowest pace in five years, as a summer war dragged, but is expected to pick up pace next year. Wednesday's preliminary estimate was nevertheless higher than a prior prediction of 2.2 percent. Despite the July-August conflict with Palestinian militants in Gaza, growth beat that of most other Western countries, with the OECD average at 1.8 percent. Israel's economy produced a record 1.1 trillion shekels (182 billion pounds) in 2014. "Without the war, GDP would have been much higher," Oz Shimony, senior director of the statistics bureau's macroeconomics department, told Reuters after a news conference. Shimony said it was difficult to quantify the impact of the war, during which factory output was curtailed, consumers stayed home and tourists cancelled in droves. But he said the third quarter's 0.1 percent annualised contraction -- revised from an initially estimated 0.4 percent drop -- was an aberration. Gross domestic product grew 2.7 percent in the first quarter and 2.0 percent in April-June. "We expect the fourth quarter to be much higher," Shimony said. The Bank of Israel this week revised its 2014 economic growth estimate to 2.5 percent from 2.3 percent, saying the war had shaved 0.3 percentage points from third-quarter GDP. It also raised its 2015 growth forecast to 3.2 percent from 3 percent. Weaker growth, which partly pushed Israel into deflation, led the Bank of Israel to lower its benchmark interest rate by 0.75 percentage points during the year to an all-time low of 0.25 percent. The central bank has left the rate steady the last four months and its economists expect no change until 2016. During 2014, exports -- which account for some 40 percent of activity -- grew 0.6 percent, slower than 2013's 1.5 percent rise. Imports grew 0.9 percent. Private spending rose 3.8 percent versus 2013's 3.3 percent. Public spending edged up 3.8 percent, while investment in fixed assets slipped 2.7 percent after a 1.1 percent rise last year. Growth for all of 2014 was the slowest since a 1.9 percent pace in 2009. On a per capita basis, GDP grew 0.7 percent in 2014. (Editing by Tova Cohen and Catherine Evans)