IMF: israeli GDP will shrink by 6.3% and unemployment will jump to 12%

Following the Corona epidemic, Israel will hit by 2020 the hardest recession it has ever known: GDP will shrink by 6.3% and unemployment will jump to 12% - according to the World Economic Outlook (IMF), the world's largest economic organization every six months. According to the April 2020 version of the fund, this is a much graver and much more difficult forecast than the Bank of Israel Research Division's forecast of a 5.3% contraction and only 6% unemployment rate.
In the global financial crisis in 2009, Israeli GDP did not decline, the economy was not in a recession - nor technical, which meant two consecutive quarters of negative growth. Since only in the last quarter of 2008 was negative growth (decline in GDP), when in the first quarter of 2009 The GDP has risen slightly, more so: Fund economists predict 5% growth in 2021, with the Bank of Israel forecasting next year and a rapid recovery to be much more optimistic: 8.7% growth.
Against the backdrop of the recession expected in Israel, the fund's forecast is for deflation in the economy - a total price decline of about 2% - against the backdrop of activity and demand decline. Next year, the index is expected to rise by half a percent. It is possible that the figure that may explain such a bleak outlook is unemployment: the IMF forecasts a sharp rise in unemployment from 3.8% in 2019 to 12% in 2020, falling to 7.6% in 2021. On the other hand, the Bank of Israel expects a decline to 5.5% next year.
Such a sharp rise in unemployment will have a dramatic impact on demand in the economy - including private growth, investment and exports - and may explain the dramatic decline in GDP-driven activity and deflation in the economy.
International Monetary Fund economists estimate that the government deficit will reach more than 10% of GDP this year (more than most Western countries except the US, where a budget deficit of 15% of GDP is projected) and will remain high - 6% - even next year.
The only bright spot that emerges from the data table is in the context of the current account surplus that has characterized Israel over the past decade and a half. In other words, the flux of dollars flooding the economy will be higher than that coming out of here, so the "surplus" should remain both this year and next.
"This crisis is unlike any other," wrote Gita Gopinath, chief economist of the foundation. "First, the shock is huge. The loss of productivity related to the health emergency dwarfs the loss caused by the 2008 global financial crisis. Second, as in a war or political crisis, the difficult uncertainty about the duration and intensity of the shock. Third, under current economic policy circumstances, Regular crises in which policymakers try to encourage economic activity by rapidly stimulating demand, ”Gopinath explains.
According to her, the crisis this time requires the means of containment making the policy challenging, and for some sectors undesirable. She concludes: "The global economy is likely to experience its worst recession this year since the Great Recession of 1929, which will surpass the global financial crisis a decade ago. The major downturn - so we can call it a phenomenon we are witnessing - is expected to dramatically shrink global growth. By 2021 it will be partial and GDP levels will remain below the 'pre-virus' trend, with considerable uncertainty about the strength of recovery. "
The fund's allies sharply cut the world outlook by 6.3 percentage points last October, according to which - global GDP will decrease by 3% compared to 2019, with a positive growth of 5.8% in 2021. Most of the harm will focus on developed economies, including European and Latin American economies, with the blow being more moderate in Asian economies.
According to the IMF Economic Review, the global economy will lose about $ 9 trillion ($ 1,000 billion) as a result of the Corona virus. China will emerge from the crisis soon: it is one of the few countries where GDP will grow by 1.2% this year and by 9% next year.
The significant gaps between forecasts of Israeli and international bodies are based on two critical variables: duration of downtime and level of downtime. That is, if the fund's assumption was that the downturn continues after May and the closure will be tighter - then the hit is significant far beyond that of the Bank of Israel, which assumes that after Passover there will be a slow, gradual and sophisticated return to routine. By 2021, activity will be almost normal and completely normal except for some flight-related issues.
The IMF has contacted the Israeli authorities to understand the basic assumptions taken in Israel, but because the decisions regarding the closure and the extent of its closure are made on a daily basis, it may be that the fund's economists have worsened prior to the publication of the report. The Bank of Israel assumes that after Pesach there will be a return to activity as already in the second half, the economy will return to a full routine, and the IMF may have made other assumptions. Expelled to the U.S led to the "E-Mass" - with only 10% of employees being laid off Or resigned. Here the duration of the crisis is critical - if it will be long and now finally closed, those employees will be fired taken unpaid leave - then the numbers may jump.
Another important point: the Bank of Israel forecasts 6% unemployment at "average", but at its peak, its estimates indicate 8% unemployment, with IMF economists assuming 12% could be the unemployment rate at the end of the period. So the gap is significant - but less than it seems at first. In Israel, the IMF relies on reservations and believes that they have worsened because they lacked significant data from Israel.