In Israel, coronavirus likely to affect tourism and construction first – analyst

Should the virus not be constrained in a few weeks, a reduction in supplies from China could cause a slowdown in any sector dependent on imports, Bank Leumi’s chief economist says

Shoshanna Solomon was The Times of Israel's Startups and Business reporter

In this January 23, 2020, photo, a staff member wearing a hazardous materials suit hauls a bin at a hospital that reported a coronavirus death in Yichang in central China's Hubei Province.  (Chinatopix via AP)
In this January 23, 2020, photo, a staff member wearing a hazardous materials suit hauls a bin at a hospital that reported a coronavirus death in Yichang in central China's Hubei Province. (Chinatopix via AP)

It is still early to assess the economic impact of the coronavirus on Israel’s economy, but the first sectors to be impacted are likely to be tourism and construction, a leading Israeli economist has warned.

“We don’t know how long this episode is going to last, so without knowing that it is difficult to say how deep the impact will be,” Gil Bufman, the chief economist at Bank Leumi Le-Israel Ltd., Israel’s second largest bank by market capital, said in a phone interview with The Times of Israel.

The number of tourists coming from China to Israel accounts for some 3.5% of total tourist arrivals, he said, so there could some impact on the tourism sector, he said. But the “more substantial” impact could come indirectly, if people globally start to travel less, for fear of contagion.

“That could be damaging for the Israeli tourism sector and the hotel sector in the first quarter of the year, assuming that things do end within one quarter as they did in 2003 with the SARS epidemic,” he said. Identified in 2003, SARS — Severe Acute Respiratory Syndrome — affected 26 countries and resulted in more than 8,000 cases that year.

Gil Bufman, the chief economist of Bank Leumi (Bank Leumi)

The construction industry is also likely to be immediately impacted by the virus, Bufman said.

“A lot of the labor in the construction sector is from China,” he said. If workers who were scheduled to arrive in Israel cannot do so because of travel restrictions, that could have “some negative impact.”

The coronavirus that is spreading in China and from China could become a pandemic that hits the globe, according to world infectious disease experts, the New York Times reported on Sunday. In the last three weeks, the number of lab-confirmed cases has jumped from about 50 in China to more than 17,000 in at least 23 countries; there have been more than 360 deaths, the report said.

On Sunday, Prime Minister Benjamin Netanyahu held a meeting to discuss the government’s preparedness for the virus, attended by the health, finance, justice, interior, and transportation ministers as well as the head of the National Security Council, among others.

During the meeting, Netanyahu said the arrival of the coronavirus in Israel was “unavoidable” and instructed the Israel Institute for Biological Research to prepare a vaccine in case it needs to be mass-produced.

“We aren’t taking any unnecessary chances,” Netanyahu said Saturday. “The virus is already in five continents and 25 countries. We are aware that we cannot fully prevent the virus entering [Israel]. So, we are preparing in advance for how to contend with the virus after it first arrives.”

Health Minister Yaakov Litzman (2L) and Health Ministry officials during a meeting on the threat of the Chinese coronavirus, at the Health Ministry in Jerusalem, February 2, 2020. (Health Ministry/courtesy)

Health Minister Yaakov Litzman on Thursday announced that Israel would not allow flights into the country from China amid concerns over the spread of the virus. The national carrier, El Al, on Thursday joined multiple other airlines in pausing flights to China.

The World Health Organization has declared the outbreak a global emergency and has warned governments need to prepare for “domestic outbreak control” if the disease were to spread in their countries.

Should the virus not be constrained within a few weeks, Leumi’s Bufman said, Israel could witness a disruption of supplies from China, including clothes and shoes, and some manufacturing materials.

Chinese workers attend the opening ceremony of the construction works for the new Tel Aviv Light Rail on February 19, 2017. (Flash90)

Importers of fashion items, electronics and home appliances in Israel were already warning of higher prices due to an expected shortage of goods should the Chinese factories in quarantined areas not resume production, according to TheMarker financial newspaper. These products are largely imported from China.

“Any sector importing or dependent on imports from China could be affected,” said Bufman, though he didn’t think the effect would be immediate.

“Hopefully before the inventories are depleted, the Chinese will be able to go back to work and things get back on schedule,” he said. “But if they are not contained in time, then maybe later on in the year we will start to see the impact of a shortage of supplies in the forms of finished goods, raw materials, intermediate materials, and those shortages might have a broad impact on Israeli growth.”

Regarding the tech industry, Bufman said that most of the growth in the industry in recent years has been in tech services — software, cybersecurity and fintech, which do not require a lot of hardware. Semiconductor chips are manufactured in Taiwan and Malaysia as well as in China, he said. However, some semiconductor manufacturers in Israel send their wafers to be cut into chips in China, which could be affected, he said.

If this “capacity in China is shut down temporarily, that might have an impact not only on Israel but on semiconductor users worldwide,” Bufman said.

“Once again, for the immediate term the inventories might be sufficient to bridge over the difficult time right now, but if this drags on then there could be substantial effect later on,” he said.

Mellanox ConnectX IB Adapter Card (Single-Port) (Photo credit: Courtesy)
Mellanox ConnectX IB Adapter Card (Single-Port) (Courtesy)

Chipmaker Mellanox Technologies Ltd., acquired by US gaming and computer graphics giant Nvidia for $6.9 billion last year, said in a text message that “at this stage” the situation in China “does not affect the company’s business activities.”

Mellanox has offices in Beijing, Shenzhen, Hangzhou and Shanghai, and its Chinese activities include research and development, sales, marketing and production lines. The firm employs 120 workers in China, of whom three are Israeli. Two of the Israeli workers have returned to Israel while one has stayed on, at his request, the company said in the text message.

Flights of Israeli workers to China and Chinese workers to Israel were canceled, the firm said, adding that it had “donated masks to all Chinese workers and continues to follow government guidelines.”

The Mellanox-Nvidia deal is still awaiting approval from Chinese regulators.

It is “way too early” to say what the impact of the virus will be on the tech industry as it is a developing story, said Jon Medved, an Israeli venture capitalist who heads the crowdfunding platform OurCrowd, by phone.

“Right now we are not seeing much of an impact,” he said.

Typically though, travel restrictions make it harder to do business, he said. Much of the VC and tech business is still very much a “face to face” business and to the extent that travel is hampered “that won’t be good.” Even so, technologies such as videoconferencing would help overcome the barriers.

Leumi’s Bufman said the coming weeks will be crucial.

“We probably have another two weeks or so to see if the efforts of the Chinese authorities to contain the spreading actually pay off and hopefully within two weeks we start to see a drop in the frequency of the virus being detected and then things start going back to normal,” he said. “But if not, then it could turn into something that has substantial negative economic effects for the global economy and for Israel” — both indirectly, as the nation is affected by a slowdown in the global economy, and directly, in the specific industries mentioned earlier, he said.

The TA-35 blue chip index on the Tel Aviv Stock Exchange declined on Sunday, rattled by the spread of the virus in China, and was trading 1.7% lower on Monday at 12:18 p.m. in Tel Aviv.

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