Israeli economy after corona? You must be joking!
A month or so from now – say early June 2020 – it is possible to envision the Israeli economy trotting back towards a semblance of normality.
But what does that mean in reality? Before corona, unemployment was around 4%, people had been ignoring the price index for years, and the GDP was set for a 3.25% or so growth for 2020. Very healthy, but in the past.
Let’s face it, a big chuck of society, especially in Jerusalem and peripheral areas, revolves around the tourism industry. Hotels, airlines, tour guides, tour sites are all ‘out of position’ and will almost certainly need to lower prices for a year or so. In Eilat, where 70% unemployment has been recorded, the good times will not be returning tomorrow morning. Nationally, 26% of the workforce currently does not have a job to go to on Sunday morning, and the number is growing.
It is not all doom and gloom. Some commercial sectors have held up well. For anecdotal evidence, juts look how all the building projects in Tel Aviv and Jerusalem have leapt ahead. On the high-tech front, overseas investment continues, although at a slower rate:
- Smart LD lighting firm, Juganu, has raised US$18 million.
- Hargol, foodtech, secured a further US$3 million.
- Entrée Capital venture capital fund announced this week that it had closed a US$100 million seed fund.
However, none of that has stopped the IMF forecasting a 6.3% drop in Israel’s GDP for this year. The Governor of the Bank of Israel sees a 5.3% dip ‘only’. Sure, these are predictions, but in this case there is no prior model to make such estimates. To make the point, both teams foresee a relatively quick rebound, but how much and when is up for debate.
My main concern for the future lies in the economic policy, or lack of, for the next six months. First, much of the immediate central government help for businesses has been built around loans. Allow for the fact that old-fashioned bureaucracy is delaying their approval. Once eventually in play, companies will be depending on sales rising quickly in order just to pay off loans.
If that does not happen, the government will have printed money for no good reason. That is a trigger for inflation. In parallel, more companies will simply go under. More unemployment!
And second, the government is effectively paralysed. The country has held three general elections in 12 months, and a potential fourth is looming. The Minister of Finance is a political has-been. In other words, there is no fiscal direction from the centre, and neither is their likely to be soon. Commerce is being told to get by, on your own.
I am not kidding you when I say that a 6.3% tail off might actually turn out to be too optimistic, especially with this current government in charge.