Bank of Israel: the direct cost per week of closure is about NIS 9 billion per week of closure

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by Ifi Reporter Category:Financial Sep 30, 2020

The Research Division of the Bank of Israel examined the extent of the impact of the closure and the epidemic on the Israeli economy. What damage will be done to such a long-term locksmith economy? According to Prof. Michel Strawczynski, director of the research division at the Bank of Israel and a member of the Monetary Committee, the direct cost is about NIS 9 billion per week of closure. This means that the continuation of the closure in its current format for 90 days will cost the economy more than NIS 115 billion.
The Bank of Israel's Research Division conducted a preliminary analysis of the cost of the current closure (until the evening of Sukkot) and its expected impact on economic activity in the economy. According to the analysis, the current restrictions will lead to the cessation of activity of about a third of the economy (32% in terms of GDP), compared with about a quarter of GDP in the previous closure in March-April.
Prime Minister Benjamin Netanyahu said the quarantine may continue until a vaccine is found. The Ministry of Health believes that a closure of at least 90 days is required.
Strawczynski explains: "We have returned to the closure out of necessity. My hope is that the morbidity situation will allow us to return to less rigid methods, such as the traffic light method, which cost the economy less. NIS.
"There are industries where the damage is more significant - such as the tourism industry, where the inactivity is more than 80%; the transportation industry, which is 50% disabled; and the land transport industry and the food and beverage industry, where the inactivity is high. is very.
"In the second closure, however, it will be easier for us to cope, as the assistance programs work faster. The supports and grants are in addition to the bank lending program at 0.1% interest on behalf of the Bank of Israel, which requires banks to lend to small and small businesses "Businesses that have the opportunity to survive through loans and continue their activities will pass the closure."
According to him, households in the lower deciles of 1–4 are more likely to run into difficulties. In the households of two self-employed breadwinners, the damage was significant, and their chance of being without a breadwinner was about 20% in April. In July it dropped towards 4%. In the lower deciles this is a higher percentage. This surgery was done before the current closure - now the chances will rise again. Still, the extended support mechanisms, including extending the loan outline to December, will help with the deal. "
"In the forecast we published before the quarantine, we predicted that by 2021, the economy would not reach the level it could have been if it had continued to grow at a pre-Corona rate. So has unemployment. "2021 will be less good than before the Corona."
In the Research Department of the Bank of Israel: "There is no concern about the stability of the banks, the system is functioning well. In the financial results presented by the banks we have seen a decrease in profits - as in all bodies operating during the corona period - but this does not lead us to concern about the stability of the banking system. "Conservative rules that ensure its strength. This was already on our side a decade ago, in the previous crisis, and also at the time of entering the current crisis."
"The most significant debt that must be mentioned is the government debt. A crisis of this kind leads to a sharp decline in GDP, which leads to a decline in tax collection - which in turn leads to an increase in the government deficit. The deficit is expected to rise in 2020 to more than 13%. % Of GDP.
"This development is typical of all developed countries. Israel's strength is that we started with a low debt-to-GDP ratio compared to the world. The Governor of the Bank of Israel defined it at the time as a 'strategic asset' of Israel. In some developed countries, the debt-to-GDP ratio soared to more than 100 % Following the corona crisis, but we are in a good place and the economy can meet the current level of debt, as long as there is a crisis.As long as the illness dictates the need for additional support programs, which raise the level of debt - it makes sense, and credit rating companies show understanding. The debt is also related to the closure and measures designed to support economic activity in the economy. "
"At the moment we do not know how many weeks the closure will last. We saw a significant drop in tax revenues until May, and in June we saw a change of direction - but following the new closure it will be adversely affected.

 

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