Will a miraculous history rescue Israel’s economy?
So it’s official. In 2020, Israel’s economy imploded by 3.3% and left a budget gap of nearly 160 billion shekels, devastation not seen since the 1980s.
No doubt the optimists, which are by chance often proponents of the ruling Likud party of Mr. Netanyahu, will argue that 3.3% down is brilliant – nothing compared to the sufferings in many other members of the OECD. (An interesting piece of spin, as Israel slouches towards another general election). And I should point out that Israel’s tech stocks are “bubbling“, as the country’s hightech sector has closed another brilliant year of investments.
There are some technical stats that drive a vast hole in the attempt to be positive.
- 12% unemployment, and a state aid system that encourages people to stay at home.
- Inner cities abandoned by hundreds of small establishments
- Approx 30% of businesses have not taken up available government aid, primarily because of bureaucracy or …….
- ………Around 75,000 businesses have shut up shop this year.
It is the last point that is particularly worrying. Over the period 2013 to 2019, around 55,000 operations opened up every year, about 12,500 greater in number than those that closed. That means the failure rate for 2020 has shot up around 75%.
This means that government aid has at least been partially misdirected. It also means that the government can collect less taxes. Local councils will receive less in revenue from rates. And more needs to be paid out in welfare.
Who will fund all that budget deficit? (I suppose that is not a question that the Likud politicians need to answer until after the general election).
History may give us a hint of what could happen to the Israeli economy, and here there is an excuse for a small smile. There have been dark spots before, notably after the 1973 Yom Kippur war or following on from the 2008 global credit crisis or after the military escalations in Lebanon. On each occasion, somehow ‘things worked out’ much quicker than had feared.
In other words, when challenged, the Israeli economy has demonstrated resilience and flexibility. Where could that come from in 2021, I will not predict here. Stay tuned.