government forecast: Israeli economy will recover from the corona crisis - in four to five years

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by Ifi Reporter Category:Capital Market Aug 2, 2020

It will be four to five years before the Israeli economy recovers from the corona crisis and returns to a state of full employment - according to the Ministry of Finance's economic forecast for 2023-2020, published today (Sunday).
The Treasury presents two possible scenarios: recovery and exacerbation. In a situation of aggravation, the ministry warns, the unemployment rate will be 15% at the end of the year. According to the Treasury's forecasts, growth is expected to contract by 7% in 2020 and grow by 2.2% in 2021.
Even a recovery, accompanied by relatively limited new restrictions as a result of rising morbidity, will not spare the economy, and will also lead to an overall damage of about 8.9% in GDP compared to the previous growth forecast for 2020, which stood at 3%. In that case, the unemployment rate at the end of the year will be 10%. Meanwhile, a contraction in exports is expected, with an emphasis on the export of goods in industries with medium-low technological intensity, and a halt in the export of tourism services.
 Data have been published indicating the extent of the damage in certain industries, which is reflected in a decrease in the collection of taxes from business owners in these areas. Thus, tax collection in the tourism industry decreased by 44.9%, in the arts and entertainment industry by 34.9%, in households by 32.5%, in mining and quarrying by 30.5% and in real estate activity by 5.7%.
Along with these data, the Treasury says that experience from around the world in recent decades shows that after significant economic crises, many years may pass before the market returns to full employment. This is on the order of four to five years, and sometimes even longer. At the same time, there is great uncertainty about the duration of recovery from the crisis in the labor market in light of the nature of the current crisis.
Exports in 2020 are expected to shrink by about 9%, compared to the expectation of an expansion of 4.6% that appeared in the previous forecast. The contraction in world trade, at 11.9%, is expected to affect Israel's exports of goods. Exports of goods will also be affected by the reduction in activity during the closure period in March-April.
The Treasury Department also estimates that there will be some damage to the export of high-tech services, given the significant contraction in the United States economy. However, it is estimated that the contraction in exports may be relatively moderate, given the opportunities created by changes in activity patterns, mainly an increase in the volume of remote work that increases the demand for technological solutions.
Foreign tourism has been hit dramatically and unprecedentedly, similar to the rest of the world. This industry accounted for about 13.6% of exports of services before the outbreak of the crisis, and about 7.4% of all exports. However, as of March, tourism to Israel has almost completely stopped, and a long time is expected to pass before the industry fully recovers. The damage to general exports as a result of the crisis in the tourism industry is estimated at 4.3%.

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