Finance Ministry sets out ever-bleaker outlook for Israeli economy

Finance Ministry sets out ever-bleaker outlook for Israeli economy

Economy could contract by 5.9%-7.2% this year, due to the coronavirus pandemic; ministry forecasts budget deficit of 13%-14.2% of GDP

Israelis protest against the government's latest coronavirus restrictions in Tel Aviv on July 18, 2020 (Miriam Alster/Flash90)
Israelis protest against the government's latest coronavirus restrictions in Tel Aviv on July 18, 2020 (Miriam Alster/Flash90)

The Finance Ministry’s outlook for the economy is getting gloomier, saying gross domestic product could contract by 5.9% this year or even by 7.2% amid further lockdowns, according to data presented by the ministry’s chief economist, Shira Greenberg, on Thursday.

The ministry had originally forecast a contraction of 5.4% in the economy this year due to lockdowns and social distancing measures put in place to keep the coronavirus pandemic at bay.

Growth in 2021 will be 5.7%, but could also be as little as 2.2% in a bleaker scenario if the pandemic worsens, Greenberg said during a video conference held by the IDC Herzliya college, Calcalist reported. This compares with a 3% growth forecast for 2020 before the coronavirus struck, and a 3.3% economic growth in 2019.

The budget deficit is expected to be 13.1% of GDP this year, as opposed to a former forecast of 10.29%, Greenberg said, and in the case of a slower than expected economic recovery, the deficit could climb to 14.2% of GDP. In 2021, the deficit will be 9.4% and in 2022 it will be 6% — or in a bleaker scenario 12.5% in 2021 and 8.9% in 2022.

Shira Greenberg, chief economist of the Finance Ministry, attends a press conference at the Finance Ministry office in Jerusalem, September 23, 2019. (Flash90)

The debt-to-GDP ratio, which was 61.2% in 2019, is now expected to surge to 75.8% this year and to 85.1% in 2023. A low debt-to-GDP ratio indicates an economy that produces and sells goods and services sufficient to pay back debts.

In a bleaker scenario, the debt-to-GDP ratio could surge to 77.9% this year, and reach 98% in 2023, the ministry forecast.

Earlier this month, the Bank of Israel said the nation’s economy this year will contract by 6%. The OECD put the contraction of Israel’s economy in 2020 at 6.2%, or 8.3% if there is a second wave of the virus. And high unemployment may prove the biggest obstacle on Israel’s road to recovery, experts fear.

The gloomy Finance Ministry data comes amid unemployment figures, as provided by the National Employment Service, that show a renewed rise in people who are without a job, as the nation enforces further lockdowns to curb a second wave of the coronavirus.

The pandemic, which has killed more than 600,000 worldwide, brought Israel’s death toll to 406 on Sunday morning, with five more deaths reported since Saturday evening alongside a sharp increase in the number of patients in serious condition.

The Health Ministry said 1,414 new coronavirus cases were confirmed in the past day, bringing the national case total to 49,575 since the start of the pandemic, of which 27,729 were active cases. Infections have gone up steadily since early June, and in recent days generally began to pass 1,800-1,900 cases a day, far surpassing the initial wave of the outbreak in March-April, and triggering renewed lockdowns of parts of the economy.

Israelis protest against Prime Minister Benjamin Netanyahu outside his official residence in Jerusalem on July 17, 2020.( Yonatan Sindel/Flash90)

New public restrictions authorized by the government to combat the spread of coronavirus entered into effect Friday at 5 p.m., limiting public gatherings until further notice and shuttering various leisure and fitness activities for the duration of the weekend.

The Employment Service said that 2,825 new people between Thursday and Sunday morning reported they are seeking work, as opposed to 1,093 who said they went back to work.

Since the start of the opening of the economy, on April 19, some 404,995 people have said they have returned to work, as opposed to 164,019 new people who reported they are looking for work, the Employment Service said.

According to the Employment Services data, as of Sunday morning there were 855,380 who were seeking work, of whom 573,949 were people who were furloughed. The unemployment rate has crept up to 21.1%, the Employment Service said, from 20.9% on July 8. At the height of the first wave of the crisis, the number of jobless, including furloughed workers, exceeded 1 million.

Jump in individuals filing for bankruptcy in June

The second wave of the coronavirus pandemic has also triggered a spike in individuals filing for bankruptcy, Calcalist reported, citing figures from the Justice Ministry. In June, there were 2,038 individuals, not corporations, who filed for bankruptcy, up 75% from a year ago.

The spread of the coronavirus and the lockdowns are one of the reasons for the jump in the number of filings, Calcalist said, but also the fact that a new law has entered into force, which places emphasis on rehabilitating the persons in debt and reaching an agreement with creditors as opposed to punishing them, as under the previous law.

The number of corporations that have filed for bankruptcy remained unchanged in June, though there is a difference in the composition of the companies — with three times more restaurants filing for bankruptcy in June this year compared to last year, the data showed.

read more: