Bank of Israel: We are below the global average in terms of helping the economy in crisis

There is no real danger to financial stability in Israel, but the intensity of the risk to financial stability in the first half of the year was assessed as medium-high. This emerges from the Financial Stability Report of the Bank of Israel's Financial Division, published on Tuesday. This is a rare assessment of its kind in Israel.
The report reveals that Israel is below average among the countries that have provided support to the economy, both in grants to citizens and assistance to the self-employed and companies, and in providing guarantees for loans and opening special funds for loans.
The comparison was made according to the rate of support in each country relative to its gross domestic product (GDP). Compared to about 11.5% of aid relative to GDP in Australia, about 11% in Singapore, about 9.8% in the US, 8% in Thailand and 7% In New Zealand, support for Israel in the first half of 2020 amounted to only 3.7%, similar to Poland, Brazil, Sweden, the United Kingdom and Malaysia, where support ranged from 3.6% to 3.9%.
The Corona epidemic, which broke out in the first quarter of this year, has severely challenged the financial system, however, Bank of Israel economists state that "thanks to the good condition of the economy at the beginning of the crisis, The financial system and close supervision of it, the financial system contains the event and continues to function. "
The authors of the report note that the form and pace of recovery from the crisis are of great importance. "Employment insecurity, high unemployment rates and labor market uncertainty will reduce public expectations about their future income, and are therefore expected to reduce demand in the economy."
The Bank of Israel also states that the value of public assets, which has eroded as a result of the declines in the prices of financial assets, is also expected to have a negative effect on private consumption in the economy. Investment in the business sector, which was low in international comparison even before the crisis, is not expected to improve in the wake of it, and the impact of world developments on foreign trade will continue to cloud the Israeli economy even if it recovers relatively quickly.
According to the report, in the early stages of the corona crisis, uncertainty about the severity of the spread of the virus caused a significant shock in the dynamics of financial markets, which created liquidity difficulties in key markets and raised serious concerns about continued regular supply of credit by financial institutions.
In response, the Bank of Israel has taken a series of measures designed to return the markets to full function, ensure liquidity for financial institutions and provide households and businesses with access to credit. In the short term, it can be said that the Bank of Israel's measures, against the background of measures taken around the world, have succeeded in calming a large part of the panic in the markets and returning them to normal activity.
Economists state that the main and real risk scenario is increased morbidity, restrictions on movement and closure, and with them further aggravation of the damage to economic activity. The consequences of such a wave include damage to the repayment ability of borrowers, and in particular of loans whose repayments have been postponed, the need for another wave of incentives from the government, the implementation of which will lead to a worsening of the budget picture and further economic uncertainty.
An interesting statistic presented in the report is that when it comes to reducing interest rates around the world, Israel is at the bottom of the rankings, but this is precisely because of the very low interest rates introduced years ago in Israel. The interest rate in Israel fell during the corona crisis by only 0.1%. In contrast, the interest rate in South Africa was reduced by 2.5% in the first half of the year, the interest rate in Brazil was reduced by 2.25%, in Mexico the interest rate was reduced by 1.75% similar to the Czech Republic, and the US interest rate was cut by 1.5% as in Canada And in Norway.
The Bank of Israel's Financial Stability Report is published twice a year. In this report, the Bank's economists analyze the channels of exposure to risks in the financial system and their level of vulnerability, express their assessment of the main risks and examine the system's resilience to these risks.
The assessments and analyzes presented in the report are based on an overview of economic and financial developments, an examination of the structural characteristics of the financial system, analytical models, the impact of the state of the economy on financial stability and an assessment of the most recent background conditions in Israel and the world. That their realization could significantly affect the economy in the short and medium term, in order to increase their awareness among policy makers and the general public and enable appropriate preparation.