"The consequences of the corona crisis will accompany the Israeli economy for a long time


by Ifi Reporter Category:Capital Market Oct 22, 2020

The consequences of the corona crisis and how it will be managed will continue to accompany the Israeli economy for a long time. In 2021, a further contraction in the economy, a mass closure of businesses and an increase in the number of high-risk businesses were forecast. The main victims will be small and new businesses, and those that have rejected loan repayments to banks. This all comes up in a review conducted by business information firm Dun & Bradstreet for TheMarker newspaper.
The review shows that 2021 is expected to be the second consecutive year in which the economy has shrunk, after a decade in which it has grown steadily. Next year about sixty thousand business owners are expected to close and only about forty thousand are expected to open.
Although the estimated closure rate in 2021 is lower than in 2020, it is still 25% higher than in the previous year. In 2019 and in previous years, 15,000-10,000 businesses were added to the economy every year. The probability of closing a business has also increased, from 7.5% in 2019 to 13% in 2020, and in 2021 a partial decrease to 10% is expected.
Dun & Bradstreet stress that if there is no improvement in control of the plague around the middle of 2021 - the estimate for next year will be even more pessimistic. The forecast for 2020 regarding the number of businesses that will be closed is more moderate than the one published in July. This is partly due to the increase in economic support from the Bank of Israel with the publication of the outline for further deferral of borrowers' loans, and the government plan that guarantees grants to businesses until June 2021. Nevertheless, many businesses that did not close in 2020 are expected to close in 2021.
"The support measures give a kind of artificial soul to some of the businesses. Many businesses that did not close in 2020 are expected to close in 2021."
"Deferring loan payments on the part of borrowers - only postpones the deadline for closing businesses," says Efrat Segev, VP of Data and Analysis at Dun & Bradstreet. "Based on the data, and with a forward-looking view for 2021, we estimate that one in five businesses is currently at high risk, and that this ratio is expected to be maintained in the first half of 2021."
Most businesses that are expected to close are small or new businesses - which are in high risk anyway - as well as businesses that have postponed loan repayments to banks under the outline, and will not register an improvement in business activity that will allow a new repayment of the debt. At the same time, businesses that have entered a crisis with a higher level of leverage are characterized by a higher level of risk and a higher probability of falling into financial failure.
"The main reason for the decline in business opening in 2020 is the uncertainty in the economy," Segev explains. "It is difficult for business owners to make business decisions when there is no certainty about the expected income and difficulty in managing cash flow. Thus, in light of the unemployment rate in the economy, the purchasing power of the public is small and adversely affects the viability of starting a business at this time. "With financial assistance. However, against the background of the crisis, the public's savings have also been reduced and at the same time there has been a decrease in access to sources of financing." According to her, businesses that continued to open this year are also characterized by activities suitable for the days of closure, such as e-commerce, deliveries, various ventures, courses and training, and home cooking and baking.
The poor state of business in the economy is also reflected in a sharp increase in the number of recurring checks since the outbreak of the crisis. According to Dun & Bradstreet, which relies on business information that the company regularly collects on companies and businesses, in March-September there was an increase of more than 20% in the number of checks that were not honored due to "insufficient coverage", compared to the same period last year. In addition, during this period there was an increase of about 4% in the number of bank accounts identified as restricted.
While businesses in many industries have been hit by the crisis, there are businesses that are experiencing growth at this time and are characterized by a decline in the level of risk in the shadow of the crisis. In the food industry in its segments - the marketing chains and food manufacturers and importers - there was a 10% –11% decrease in risk in light of the increase in food purchases by the public; In the high-tech industry, which continues to grow and export services, there was a 10% decrease in risk; The pharmaceutical industry recorded a 7% decrease in risk; And the computer industry in its segments, recorded a 5% –6% decrease in the level of risk in light of the increase in public use of technological means, due to employers moving to distance work and the education system for distance learning - which increased the demand and purchases of computers, ancillary equipment and related services.
Despite the areas that experienced an increase in activity, the aggregate business damage in the affected industries is significantly higher than the benefit among the growing industries. Thus, GDP in the economy is expected to shrink by 7% -6% in 2020.
The most significant change in the level of risk in 2020 was observed in the travel agencies industry - an increase of 39%; The hotel and restaurant industries are also experiencing a high increase in the risk level of 16% and 15%, respectively. This increase is conditional in some way as a result of receiving grants from the government.
A high 20% increase was recorded in the risk level of the construction industry - due to a sharp decline in the sale of new apartments in the first half of 2020, employment uncertainty in the labor market affecting demand, and difficulty in raising credit and receiving grants. The increase in risk in the construction industry entails an increase of about 10% in the risk in the metal industry. In this industry, a decrease in industry productivity and exports were also reported. Other industries characterized by an increase in the level of risk are transportation (8%), fashion stores (7%) and fuel trading (6%).



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