Louise Curley

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<p><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040216a.jpg" width="353"></p>
<p>The Israeli economy rose 1.23% in 2003 after two years of decline. Increases in private consumption and exports and a decline in imports offset declines in fixed investment and government consumption during the year.</p>
<p>The increase is, however, not large enough to stem the decline in real per capita income which began in 2001. A rise in real per capita income can only be achieved with economic growth greater than the increase in population, which is currently rising close to 2% a year.</p>
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<colgroup><col><col><col><col><col><col><col></colgroup>
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<tr>
<th scope="col" class="firstcol"><b>Gross Domestic Product Percent Change</b></th>
<th scope="col"><b><u>&nbsp;2003 4Q</u></b></th>
<th scope="col"><b><u>2003 3Q</u></b></th>
<th scope="col"><b><u>2003 2Q</u></b></th>
<th scope="col"><b><u>2003 1Q</u></b></th>
<th scope="col"><b><u>2003</u></b></th>
<th scope="col"><b><u>2002</u></b></th>
<th scope="col"><b><u>2001</u></b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.63</td>
<td>0.69</td>
<td>-0.36</td>
<td>0.82</td>
<td>1.23</td>
<td>-1.04</td>
<td>-0.76</td>
</tr>
<tr>
<td class="firstcol">Private Consumption</td>
<td>0.84</td>
<td>1.63</td>
<td>3.07</td>
<td>-1.29</td>
<td>1.99</td>
<td>-0.39</td>
<td>3.28</td>
</tr>
<tr class="odd">
<td class="firstcol">Government Consumption</td>
<td>-0.99</td>
<td>0.37</td>
<td>-2.54</td>
<td>0.30</td>
<td>-1.20</td>
<td>5.57</td>
<td>4.05</td>
</tr>
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<td class="firstcol">Fixed Investment</td>
<td>1.63</td>
<td>-3.80</td>
<td>-0.15</td>
<td>-1.14</td>
<td>-4.60</td>
<td>-9.59</td>
<td>-4.30</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports</td>
<td>-3.0</td>
<td>7.59</td>
<td>-2.70</td>
<td>2.61</td>
<td>5.73</td>
<td>-3.21</td>
<td>-10.91</td>
</tr>
<tr>
<td class="firstcol">Imports</td>
<td>0.26</td>
<td>4.27</td>
<td>1.39</td>
<td>-5.47</td>
<td>-1.97</td>
<td>-2.73</td>
<td>-4.14</td>
</tr>
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<td class="firstcol"><b>Units</b></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Real GDP in Bil. Shekels</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>465.6</td>
<td>460.0</td>
<td>464.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Population (millions)</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>6.75</td>
<td>6.63</td>
<td>6.51</td>
</tr>
<tr>
<td class="firstcol">Per capita GDP in Shekels</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>69000</td>
<td>69301</td>
<td>71418</td>
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The Israeli economy rose 1.23% in 2003 after two years of decline. Increases in private consumption and exports and a decline in imports offset declines in fixed investment and government consumption during the year. The increase is, [...]

Israeli Economy Increases in 2003 after Two Years of Decline

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Tian Yong Woon

This week, we focus on India’s economic developments, which continue to demonstrate resilience amid persistent global headwinds. In Q1, GDP growth accelerated to its fastest pace in a year, surpassing expectations. Services remained the primary growth driver, bolstered by gains in construction and manufacturing (chart 1). Despite widespread global downgrades, the World Bank still expects India to be the fastest-growing major economy in 2025.

While services have long underpinned India’s growth, the country is gradually pivoting toward manufacturing, including higher-end, IP-intensive sectors. Progress has been made—such as attracting iPhone production—but manufacturing has yet to significantly shift the composition of GDP, which remains heavily weighted toward services (chart 2). India’s rising role as a “China Plus One” destination has enhanced its global appeal, though the shift has drawn criticism from former US President Trump, who favours bringing manufacturing back to the US.

India’s strategic ties with both the US and China require a careful balancing act. The US is India’s top export destination, with major exports including pharmaceuticals, jewellery, and smartphones (chart 3). At the same time, India relies heavily on China for critical inputs such as Key Starting Materials (KSMs) and Active Pharmaceutical Ingredients (APIs), both vital to its pharmaceutical sector (chart 4). As a result, India is seeking to deepen trade relations with the US while avoiding actions that might provoke China. Trade negotiations with the US are reportedly progressing, with an interim deal possible ahead of Trump’s July 9 tariff deadline.

On the monetary front, the Reserve Bank of India cut policy rates by 50 bps in June and announced a phased 100 bps reduction in the Cash Reserve Ratio (CRR), in response to falling inflation and risks of weaker demand (chart 5). As a partial consequence, the rupee has underperformed its Asian peers—though the primary pressures stem from persistent foreign outflows and narrower interest rate differentials (chart 6).

**India’s economic developments**
India’s economy grew faster than expected in calendar Q1, with growth accelerating to 7.4% y/y—exceeding economists’ expectations and marking the fastest growth rate in a year. By sector, and based on gross value added at basic prices, services remained the primary growth driver, as shown in chart 1. However, contributions from the construction and manufacturing sectors also improved. More broadly, many investors and economists continue to view India as one of the few economies expected to deliver robust growth this year. This remains a rare distinction, given the growth-dampening effects of US tariffs and the associated retaliatory actions. That said, recent US-China breakthroughs on trade-related agreements have eased much of this latent risk.

Despite enacting widespread forecast downgrades in its latest projections just last week, the World Bank still expects India to post the fastest growth among major economies in 2025. Nonetheless, India’s outlook has been somewhat dampened by weaker export potential and slowing investment amid rising global trade barriers. Similarly, panellists in our recent Blue Chip Economic Indicators survey continued to rank India as the top-growing major economy among those covered.


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Over the years, India has positioned itself as a services-oriented economy, a strategy that initially offered a degree of insulation from external shocks. More recently, however, the country has begun shifting its focus toward manufacturing—not only at the low- and mid-range levels but also in high-end, intellectual property (IP)-intensive sectors. In support of this pivot, India has been gradually improving its IP protection framework. Nonetheless, it remains on the US Trade Representative’s 2025 Priority Watch List, partly due to what has been described as “inconsistent” progress on IP protection and enforcement. In more traditional forms of manufacturing, India has made several high-profile strides, including securing production capacity for iPhones. However, despite such headline-grabbing developments, the shift has yet to meaningfully alter the structure of India’s GDP (chart 2), which remains heavily services-dependent—likely due to the limited scale of manufacturing gains thus far. 

India has also emerged as a key beneficiary of the “China Plus One” strategy, as global firms seek to diversify production away from China amid rising geopolitical tensions, particularly with the US. These concerns—recently reinforced by US policy actions—have helped position India as a partial but increasingly viable alternative. That said, the shift has not been without controversy. The redirection of US-linked manufacturing capacity toward India has drawn criticism from former President Donald Trump, who has advocated for bringing such production back to American soil—even though the current US manufacturing landscape may be ill-equipped to fully absorb it.

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**India’s relationship with the US and China**
Amid ongoing US-China tensions, India finds itself in a complex—but potentially advantageous—position. On one hand, India is heavily reliant on the US as a key export market, with the US currently being its top export destination. On the other hand, India depends on China for critical inputs across several major sectors. Among India’s key exports to the US are pharmaceutical products, jewellery, and, more recently—as mentioned earlier—smartphones (see chart 3). Given this dual dependency, it is unsurprising that India is eager to maintain constructive trade relations with the US. India-US trade talks are reportedly progressing well, with an interim deal likely before President Trump’s 90-day tariff pause ends on July 9.

250616T3.jpg

At the same time, India remains highly dependent on China for low-level inputs, which may temper its willingness to appear too closely aligned with the US or to pursue a trade deal perceived as unfavourable to China. This strategic caution stems from India’s reliance on key material imports from China, including rare earth elements (REEs), recently spotlighted by China’s export restrictions. REEs are critical to several industries, notably automotive manufacturing. India is also heavily dependent on China for key starting materials (KSMs) and active pharmaceutical ingredients (APIs), both essential to its large and growing pharmaceutical export sector (see chart 4). As a result, India must carefully balance its strategic interests—deepening ties with the US while avoiding actions that could provoke a negative response from China amid rising geopolitical tensions.

250616T4.jpg

**India’s financial and monetary developments**
In response to the potentially demand-dampening effects of ongoing US tariffs, the Reserve Bank of India (RBI) cut policy rates by a larger-than-expected 50 bps at its June meeting. The move was supported by a sharp decline in CPI inflation, which fell well below the RBI’s 4% target amid easing commodity prices. However, the central bank warned that it now has “very limited” policy space left to support growth, a concern reflected in its shift in policy stance from “accommodative” to “neutral.” In addition, the RBI announced a 100 bps cut to the Cash Reserve Ratio (CRR), to be implemented in four tranches of 25 bps each from September to November, ultimately bringing the CRR down to 3%. This measure aims to release additional liquidity into the financial system.

250616T5.jpg

Lastly, we turn to the Indian rupee, which has underperformed relative to its Asian peers so far this year (see chart 6), despite the broad-based weakening of the US dollar. Weighing on the rupee have been persistent foreign equity outflows—substantial on a year-to-date basis—along with some net FDI outflows and other external pressures. The RBI’s recent interest rate cuts, though necessary to support the domestic economy, have also reduced the rupee’s appeal by narrowing interest rate differentials. Investor sentiment was further shaken during the previous wave of US-China tensions, prompting capital flight from emerging markets, including India. While some of that risk aversion has eased amid a temporary cooling in US-China rhetoric, caution remains warranted, as the US appears poised to announce a new round of unilateral tariffs in the coming weeks.

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Asia

Economic Letter from Asia: India Rising

Tom Moeller

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The National Association of Realtors' Fixed Rate Mortgage Housing Affordability Index (HAI) fell 2.3% (+6.2% y/y) in April to 101.0 after rising moderately in each of the prior four months. The recent high was 104.9 in September. The level of home affordability remained 12.3% higher than its low of 89.9 in October 2023. It remains 43.6% below the high of 179.2 in April 2020.

The decline in affordability in April occurred as the median price of an existing single-family home rose 2.6% (1.7% y/y) to $418,000, and mortgage rates rose to 6.81% from 6.73% in March. The price compared to the record $432,900 in June 2024. The rise in mortgage rates left them up from a recent low of 6.26% in September of last year and below a 7.70% high in October of 2023. It remained well above a December 2020 low of 2.73%. These changes raised the principal & interest payment by 3.5% (-1.0% y/y) to $2,182 per month. That was well above the most recent low of $984 in February 2020. Monthly mortgage payments averaged a higher 24.8% of income during April. They remained up from a low of 14.0% of income in April 2020.

The rise in housing costs in April was accompanied by improvement in median family income. It increased 1.0% (5.1% y/y) to a record $105,791 after rising 0.4% in each of the prior two months.

Housing affordability declined m/m across the country in April. The index fell 3.7% (+4.2% y/y) to 130.1 in the Midwest. It remains the most affordable region of the country. In the South, the index declined 1.1% (+8.3% y/y) to 105.6 and the affordability index in the Northeast declined 3.9% (+0.5% y/y) to 92.0. In the West, where homes are the least affordable, the index fell 1.1% (+7.7% y/y) to 71.0 in April.

The Housing Affordability Index (HAI) equals 100 when a median-income borrower qualifies for an 80% mortgage on a median-priced existing single-family home. The HAI had exceeded 100 in each month since July 1990 and reached its all-time high of 213.3 in January 2013.

Data on Housing Affordability can be found in Haver’s **REALTOR** database. Median home sales prices are also available in **USECON**. Higher frequency interest rate data are found in **SURVEYS**, **WEEKLY**, and **DAILY**.

**Inflation Expectations** from the Federal Reserve Bank of Cleveland is available [here](https://www.clevelandfed.org/indicators-and-data/inflation-expectations).

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250613I20.jpg

- Home prices & mortgage rates rise.
- Median income improves.
- Affordability falls across country.

U.S. Housing Affordability Declines in April

Andrew Cates

**The Blue Chip growth consensus**
Our first chart this week depicting shifts in consensus growth expectations highlights significant divergences in the economic outlook over the past six months and the more recent one-month period. Major downward revisions over the past six months have prominently affected economies such as South Korea, Mexico, Australia and Canada, indicating heightened vulnerability to external shocks, particularly from disruptions linked to intensified US trade policies. Conversely, China has shown a slight improvement, possibly due to an effective policy response. The recent one-month adjustments, however, exhibit much smaller and generally modest upward revisions, suggesting some stabilization or cautious optimism amid ongoing uncertainties.

250612Z1.jpg

**The Blue Chip inflation consensus**
This next chart tracking consensus forecasts for CPI inflation in 2025 across the US, Euro area, and China reveals a striking divergence in inflation expectations. In the US, inflation projections rose steadily through late 2024 and early 2025, peaking above 3% before easing slightly. This upward drift likely reflects the lagged impact of the US economy's relative strength in 2024, including robust consumer demand and tight labour markets, rather than more recent tariff-related pressures. By contrast, Euro area forecasts have remained relatively low and stable, suggesting more subdued domestic dynamics and tighter policy. Meanwhile, China's CPI forecast has fallen sharply over the same period pointing to deepening demand-side weakness and lingering deflationary risks.

250612Z2.jpg

**Supply chain pressures** 
Looking ahead, the tight correlation between the New York Fed’s Global Supply Chain Pressure Index and producer price inflation for advanced economies underscores the risks posed by US trade policies. As supply chain pressures potentially intensify—partly due to renewed protectionist measures—global producer price pressures could again escalate, creating renewed inflationary challenges and complicating central bank policy calibration.

250612Z3.jpg

**US policy uncertainty**
As the chart below illustrates, US monetary policy uncertainty remains elevated, even as it has eased from its recent peaks. This persistent uncertainty continues to drive market volatility, reflecting investor unease over the Federal Reserve’s future policy path in the face of tariff-related disruptions and inflationary pressures. The chart specifically shows a potentially valuable tool for tracking this uncertainty – the Kansas City Fed’s measure of Policy Rate Uncertainty (KC PRU). This index is constructed from the prices of financial options linked to future short-term interest rates—rates that closely track the federal funds rate—and captures one-year-ahead uncertainty at a daily frequency dating back to the late 1980s.

250612Z4.jpg

**The UK labour market** 
The UK labour market data released this week revealed a sharp deterioration, with substantial job losses indicated by payroll data alongside a rising unemployment rate. This surprising weakness not only signals immediate economic challenges but also complicates the BoE’s monetary policy response at a time when policymakers face persistent inflationary pressures and broader macroeconomic uncertainty.

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**Energy and growth**
Over the longer term, the strong historical correlation between primary energy consumption and GDP growth in advanced economies underscores the critical role of energy in sustaining economic stability. Persistently high real energy prices and complex energy transition processes present significant obstacles, particularly for energy-intensive economies like the UK, which seek sustainable growth trajectories amid heightened geopolitical and trade uncertainties.

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Financial markets have experienced considerable gyrations in recent weeks, reflecting substantial shifts in investor expectations and heightened uncertainty, largely driven by ongoing US tariff policies. Over the past six months, consensus growth forecasts have seen notable downward revisions across most major economies, though these have been partially offset by modest upward revisions in the past month (chart 1). Concurrently, consensus inflation projections have diverged significantly, with upward pressures in the US contrasting with deflationary risks in China (chart 2). Compounding these US issues, renewed protectionism appears to be pressuring global supply chains again, potentially increasing inflation risks and sustaining elevated monetary policy uncertainty (charts 3 and 4). This week's particularly weak UK employment data highlight immediate domestic economic fragility, while longer-term economic stability remains challenged by persistently high real energy prices and complexities surrounding the energy transition (charts 5 and 6).

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Charts of the Week: What’s Consensus?

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The Producer Price Index for final demand rose 0.1% (2.6% y/y) during May after falling 0.2% in April, revised from down 0.5%, and easing 0.1% in March, revised from unchanged, according to the Bureau of Labor Statistics (BLS). The Action Economic Forecast Survey expected a 0.2% increase in May. Producer prices excluding food, energy & trade services also edged up 0.1% (2.7% y/y) after falling an unrevised 0.1% in April and rising an unrevised 0.2% in March. The PPI excluding food and energy (the former core index) rose 0.1% last month (3.0% y/y) after declining 0.2% in April, revised from down 0.4%, and rising 0.3% in March, revised from 0.4%. A 0.3% increase had been expected.

A 0.1% increase (3.2% y/y) in final demand services prices held back overall pricing pressure last month and followed a 0.4% decline. Final demand trade services prices rose 0.4% (4.1% y/y) after falling 0.5%, while the trade of finished goods index rose 0.3% (3.9% y/y) following a 0.3% April decline. Transportation & warehousing prices fell 0.2% (+2.3% y/y) after a 0.1% improvement in April. Prices for final demand services less trade, transportation, and warehousing held steady last month (+3.0% y/y) after falling 0.3% in April.

The price index for final demand goods less foods & energy increased 0.2% (2.4% y/y) during May following a 0.3% increase. Nondurable consumer goods prices less food & energy rose 0.2% (2.2% y/y) after rising 0.4% in April. Durable consumer goods prices rose 0.4% (2.1% y/y) following a 0.2% rise. The private capital equipment price index improved 0.4% (3.0% y/y) following a 0.3% gain. Government prices less food & energy rose 0.2% (2.6% y/y) after rising 0.4% in April.

Food prices edged 0.1% higher (3.5% y/y) during May after falling 0.9% in April. Consumer good prices rose 0.1% (4.3% y/y) following a 1.2% decline. Energy prices for final demand held steady (-4.4% y/y) last month after rising 0.1% in April. Finished consumer energy prices rose 0.8% (-3.9% y/y) after holding steady in April.

Construction costs rose 0.3% (2.0% y/y) in May after falling 0.5% in April.

Prices for intermediate demand of processed goods edged 0.1% higher (1.9% y/y) in May after rising 0.3% in April. Processed energy goods prices fell 1.2% following a 0.4% rise while processed foods prices rose 0.5% after falling 0.9% in April.

The PPI data are published by the Bureau of Labor Statistics and can be found in Haver’s **USECON** database. Further detail is contained in **PPI** and **PPIR**. The expectations figures are available in the **AS1REPNA** database.

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- Annual increase remains below January peak.	
- Core price gain slows y/y.
- Final demand goods price increase is steady y/y while services decelerate.

Israeli Economy Increases in 2003 after Two Years of Decline

Summary

Louise Curley

More Economy in Brief

Economic Letter from Asia: India Rising

U.S. Housing Affordability Declines in April

Charts of the Week: What’s Consensus?

U.S. Producer Price & Core Price Indexes Edge Higher in May

Gross Domestic Product Percent Change	2003 4Q	2003 3Q	2003 2Q	2003 1Q	2003	2002	2001
Total	0.63	0.69	-0.36	0.82	1.23	-1.04	-0.76
Private Consumption	0.84	1.63	3.07	-1.29	1.99	-0.39	3.28
Government Consumption	-0.99	0.37	-2.54	0.30	-1.20	5.57	4.05
Fixed Investment	1.63	-3.80	-0.15	-1.14	-4.60	-9.59	-4.30
Exports	-3.0	7.59	-2.70	2.61	5.73	-3.21	-10.91
Imports	0.26	4.27	1.39	-5.47	-1.97	-2.73	-4.14
Units
Real GDP in Bil. Shekels					465.6	460.0	464.8
Population (millions)					6.75	6.63	6.51
Per capita GDP in Shekels					69000	69301	71418