Pandemic will cost Israel NIS 45 billion, wipe out growth, Treasury says

Pandemic will cost Israel NIS 45 billion, wipe out growth, Treasury says

Chief economist says new measures to stem outbreak in Israel, global downturn will drop growth by 3% and bring economy to a standstill

An Israeli man walking past closed stores in the normally bustling Mamilla outdoor mall in Jerusalem, on March 16, 2020. (Olivier Fitoussi/Flash90)
An Israeli man walking past closed stores in the normally bustling Mamilla outdoor mall in Jerusalem, on March 16, 2020. (Olivier Fitoussi/Flash90)

The Finance Ministry estimated Monday that the damage to Israel’s economy caused by the coronavirus pandemic will amount to NIS 45 billion ($12 billion) and wipe out any projected growth, as Israeli industry is brought to a near-total halt by efforts to keep the disease from spreading.

Israel’s gross domestic product is expected to drop by NIS 25 billion ($6.6 billion), the Finance Ministry’s chief economist, Shira Greenberg, said after Prime Minister Benjamin Netanyahu announced new restrictions to stem the virus outbreak.

Additionally, global events related to the virus are expected to cause another NIS 20 billion ($5.3 billion) in losses to Israeli businesses, Greenberg said.

The government on Monday ordered all business with more than 10 people to curb in-office staff by 70 percent and put the public sector on emergency footing, adding to measures that had already largely curtailed much of Israel’s economy.

The widened restrictions came after the Health Ministry voiced support for a total lockdown of the country. Treasury officials, by contrast, have been strongly opposed to a full shutdown.

While cautioning that there is currently great uncertainty regarding the future impact of the pandemic on the global market, Greenberg said the growth in Israel’s economy is estimated to drop by 3%, bringing economic growth in 2020 to a standstill. Israel had been on track for 3% growth in 2020, according to official projections.

The state’s revenue will be reduced by 1.2%, she said.

It was not immediately clear what length of time the crisis continuing for the projections were based on.

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

Finance Minister Moshe Kahlon announced grants of NIS 6,000 for small businesses and independent workers and an injection of NIS 5 billion ($1.3 billion) into the economy Monday night.

The details of the aid package would be announced in the coming days, Kahlon said.

Israel’s finance minister, Moshe Kahlon, speaks at a press conference at the Prime Minister’s office in Jerusalem, on March 16, 2020. (Yonatan Sindel/Flash90)

He said workers placed on leave will receive “improved” unemployment benefits, with those employed for six months now eligible for the payments (an easing of the regulation that formerly required workers to have been employed for at least a year).

Small business owners will be able to defer their property tax, water, national insurance, and electricity bills if they cannot make the payments, said Kahlon.

The cost of unemployment benefits announced on Monday is expected to amount to some NIS 4 billion ($1 billion) per month.

The banking sector has also rallied in recent days in support of Israeli businesses.

The Bank of Israel said on Sunday it will be buying government bonds and offering repo transactions to Israeli financial institutions, using government bonds as collateral. The bank did not specify the size of the planned transactions, only saying it would buy bonds “in the necessary quantities.”

Kiryat Ye’arim (Telz Stone), with one quarter of their residents in quarantine and 8 residents confirmed infected. March 16, 2020. (Yonatan Sindel/Flash90)

Retail banks will adjust policy to support the business sector and general public following a request from the Bank of Israel. The banks’ newly announced regulatory leniencies are aimed in particular at small and mid-sized businesses, which rely heavily on bank credit.

The banks will offer a delay in mortgage payments for a few months, loans to small and mid-sized businesses that are seeing liquidity problems, expanded digital services for remote transactions, and courier services for customers in quarantine.

The banks are expected to announce additional measures in the coming days, including easing policies on loans, credit, remote transactions, and ATM cash supplies.

Global markets and the Tel Aviv Stock Exchange plummeted on Monday, despite a massive rate cut from the US Federal Reserve on Sunday. The Tel Aviv exchange’s TA-35 index dropped 4.33% on Monday and has fallen 26.31% since the start of the year.

The Health Ministry on Monday night said 298 cases of COVID-19 have been confirmed in Israel. Four were in serious condition and nine in moderate condition.

Israel has banned gatherings of over 10 people, closed schools, forced all Israelis entering the country into a 14-day quarantine, and ordered the closure of all malls, restaurants and cafes (with takeout permitted) to contain the outbreak.

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