OECD sees Israel's economy shrinking 6.2% in 2020

Benjamin Netanyahu, Yisrael Katz, pre-Covid-19 / Photo: Knesset spokesperson
Benjamin Netanyahu, Yisrael Katz, pre-Covid-19 / Photo: Knesset spokesperson

The organization says a second coronavirus wave will mean even more severe contraction and will cause long-term damage.

The OECD's (Organisation for Economic Co-operation and Development) economic forecast for Israel is gloomier than that of the Bank of Israel, and projects negative growth of 6.2% this year. This is similar to the forecast published by the IMF on April 14. The Bank of Israel sees the economy shrinking by 4.5%. According to the OECD, if Israel is hit by a second wave of the coronavirus pandemic in the winter, its economy will shrink by 8.3% this year, and will not recover before 2022. For 2021, the OECD sees Israel's GDP growing by 5.7% in 2021, or by 4.4% if there is a further outbreak of the virus.

The OECD's report says that Israel's lockdown measures were strict in relation to those of other countries, but shorter. It sees the Israeli economy recovering slowly, with high unemployment and uncertainty weighing on economic performance. A second coronavirus wave will further delay recovery, and will cause more bankruptcies and long-term economic damage.

The OECD forecasts unemployment in Israel falling to 7.5% by the end of 2020 and to 6.6% by the end of 2021, assuming that there is no second wave of the virus. On that assumption, the OECD forecasts that the fiscal deficit will reach 11.1% of GDP by the end of this year, and will fall to 8.4% by the end of 2021. In the event of a further coronavirus outbreak at the beginning of winter, the unemployment rate will fall to 8% at the end of 2020 but will rise again to 8.8%, the OECD predicts, while the deficit will reach 12% of GDP by the end of this year, sending the country's debt:GDP ratio soaring to 78.7%. A severe second outbreak of coronavirus will mean that the deficit can be expected to be double-digit in 2021 as well, at 10.4%, sending the debt:GDP ratio even higher, to 86.6% in 2022.

The OECD remarks that despite the rapid spread of the coronavirus, the mortality rate in Israel has so far remained fairly low, and attributes this to the low average age of the population and to the country's public health system. Its report notes that Israel was one of the first countries to bar foreign visitors, used mobile phone tracking to enforce the lockdown policy, carried out a relatively large number of tests for the virus, and injected resources amounting to 0.7% of GDP (some NIS 10 billion) to strengthen the public health system. The OECD estimates that the lockdown shut down one third of economic activity in Israel, and finds that since it was removed, private consumption using credit cards has made a rapid recovery, reaching levels approaching those seen before the pandemic struck by the end of May. In tourism, hospitality and entertainment, however, activity is still depressed.

The report states that the government and the central bank took appropriate steps to support household income and corporate liquidity, and recommends continuing with such measures until the economy is on a growth track once more. It says that if recovery is weak, further measures may be required to encourage employment, strengthen professional training, and boost liquidity for small businesses, and it recommends that in such circumstances the Bank of Israel should ease liquidity further and expand its asset buying policy.

Published by Globes, Israel business news - en.globes.co.il - on June 10, 2020

© Copyright of Globes Publisher Itonut (1983) Ltd. 2020

Benjamin Netanyahu, Yisrael Katz, pre-Covid-19 / Photo: Knesset spokesperson
Benjamin Netanyahu, Yisrael Katz, pre-Covid-19 / Photo: Knesset spokesperson
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