Israel’s economy shrinks 7.1% in Q1 amid virus, sharpest decline in 20 years

Figures show only area of personal consumption to see growth during pandemic was food, drink and tobacco; Economy Ministry announces NIS 500 million in benefits for self-employed

A man walks by closed shops in the Mamilla Mall near Jerusalem's Old City on April 22, 2020. (Olivier Fitoussi/Flash90)
A man walks by closed shops in the Mamilla Mall near Jerusalem's Old City on April 22, 2020. (Olivier Fitoussi/Flash90)

Israel’s economy contracted by 7.1 percent in the first quarter of 2020 due to the coronavirus pandemic, the sharpest decline in 20 years, according to an estimate based on partial data released by the Central Bureau of Statistics on Monday.

The CBS noted that the contraction of the economy was more severe than after the 9/11 attacks and the 2008 global financial crash.

The area of the economy that saw the most damage was in private consumption — according to the numbers, the only area of personal spending to see an increase was in food, beverage and tobacco, which rose by 5.8% compared to the previous first quarter. All other areas — clothing, household goods, cars, small electrical goods, furniture and jewelry — saw a decrease in consumer spending.

Additionally, Economy Minister Amir Peretz announced Monday that the government will allocate NIS 500 million to fund unemployment benefits for the self-employed.

Incoming Economy Minister Amir Peretz at a changeover ceremony in Jerusalem on May 18, 2020. (Yonatan Sindel/Flash90)

“This is a historic correction to historical injustice,” Peretz wrote on Twitter. “The self-employed are a very important part of the Israeli economy; they are one of the most significant engines for growth.”

Furthermore, Finance Minister Israel Katz said that a dedicated team would be set up to examine and formulate solutions to help the music industry, which has suffered during the coronavirus pandemic. Artists have been among the hardest hit by lockdown regulations, with concerts, plays and events banned or limited.

Israel has seen escalating protests by self-employed workers and small business owners against what they have characterized as the government’s insufficient economic response in helping them survive the pandemic. Large chain operators have also demanded help from the government.

Self-employed and small business owners participate in a rally in Jerusalem on March 30, 2020 (Yonatan Sindel/Flash90)

Virus lockdown measures, which began in mid-March, brought the economy to an almost total standstill. Unemployment figures leaped from a record low of four percent at the beginning of March to over 25% at the beginning of April, as many businesses were forced to close their doors while the public was ordered off the streets.

As a result, the number of unemployed surpassed 1,000,000 for the first time in Israel’s history, with many employees put on unpaid leave.

As the government began to ease restrictions, the National Employment Service reported indications at the beginning of May that more people were returning to work than were joining the unemployed.

The cabinet on Sunday backed a plan by Prime Minister Benjamin Netanyahu and Katz to inject another NIS 14 billion ($3.9 billion) into the economy to make up for losses caused by the coronavirus and the lockdown measures ordered to curb its spread.

The funds will help struggling businesses and are also earmarked for projects to encourage employment.

With the added cash, the government recovery program now stands at some NIS 100 billion ($28 billion).

Of the additional funding, some is intended to increase the size of a fund granting loans to small and medium-sized business from NIS 8 billion ($2.2 billion) to NIS 14 billion. Another NIS 2 billion ($556 million) will go to support hi-tech businesses, while NIS 750 million ($212 million) is for government guarantees to cover credit for suppliers.

Then-foreign minister Israel Katz in Jerusalem on October 22, 2019. (Noam Revkin Fenton/Flash90)

The cabinet also approved a decision to supply NIS 6 billion ($1.7 billion) to reduce unemployment by providing incentives for businesses to rehire workers who lost their jobs due to the lockdown. The program has been stalled over disagreements between business associations and the finance minister over how to implement the idea without inadvertently providing employers with a motive to fire their workers in order to qualify for the grants, if there is a second wave of virus infections.

Another fund is also to be set up for businesses that have been refused loans by banks because they are considered too risky in the current period due to the coronavirus outbreak and the impact it has had on public life, such as restaurants.

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