(Recast) Spotlight: Israel's economic recovery from COVID-19 depends largely on global market: analysts
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E-mail Xinhua, June 25, 2020
by Nick Kolyohin
JERUSALEM, June 25 (Xinhua) -- As a small country, Israel relies heavily on imports by sea and air. Israeli experts say that economic recovery of the country from COVID-19 depends on the global market.
"The Israeli economy is basically a reflection of the world economy and advanced countries," said Leo Leiderman, an economic professor at Tel Aviv University.
The Israeli economy depends significantly on international trade, foreign investment, which are severely impacted by the outbreak of COVID-19.
Leiderman said, for example, Israel's well-known high-tech sector relies on foreign investment that helps local startups and venture capital firms to grow. Since the outbreak, foreign financing has shrunk dramatically, which led to the slowdown of the sector in the country.
Therefore, Israel is hardly able to see a full economic recovery as long as other countries suffer from the crisis, particularly those that not only supply goods and services but also invest heavily in the Israeli high-tech ecosystem.
During a TV interview last Wednesday, Israel Katz, the finance minister, said that Israel's economy is at its lowest point ever, and the situation will continue to worsen in the coming months.
A months-long lockdown amid the COVID-19 outbreak is the main reason for the current situation with weakening domestic consumption which constitutes around 60 percent of the gross domestic product (GDP), said Leiderman.
The lockdown caused a dramatic decrease in public expenditure, which led to suspension even shutdown of many small businesses, leaving shopping streets full of stores with "for rent" signs.
In 2020, it is expected that about 70,000 Israeli businesses will be closed, 50 percent more than average in recent years.
Additionally, 66,000 businesses in Israel had to apply for loans, and 36,000 loans were approved. According to finance ministry's data provided to the Israeli parliament (Knesset) last Wednesday, these loans totalled 13.5 billion NIS (about 3.93 billion U.S. dollars).
Throughout this outbreak, some companies have found it more economical to have their employees working remotely, but others had to lay off employees or put them on unpaid leave.
"Only a comprehensive national plan could seriously tackle the unemployment problem due to the coronavirus crisis," Uriel Lynn, president of the Federation of Israeli Chambers of Commerce, said in a letter sent Tuesday to the Israeli prime minister.
Grants for businesses to re-hire workers will not help bring back employees that companies have now deemed unnecessary for their bottom line. During the crisis, companies have realized that they can reach the same results with fewer workers, Lynn said.
One sector that suffered greatly is the service industry, Leiderman said, adding "healthcare, insurance, finance, education, travel, and more were damaged by the health requirements of social distancing."
A leading Israeli Bank Hapoalim stated Sunday that Israel would finish 2020 with a budget deficit of 180 billion NIS, 13 percent of the GDP.
"This year is going to be a year of recession in Israel," said Leiderman.
However, the Knesset Research and Information Center prepared a document for economic discussions at the parliamentary finance committee, citing a slightly more optimistic forecast about the future of the economy by Organization for Economic Cooperation and Development.
"It's really an issue whether the government would move from overspending, pouring money into the economy and creating a huge deficit, to more responsible management of the budget," stressed Omer Moav, an economic professor at the Israeli Interdisciplinary Center Herzliya.
He concluded that it would take a year from the moment the health restrictions around the world lifted until the Israeli economy recovers, but it will be a few years until a full recovery with a low rate of unemployment. Enditem
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