The near-total stoppage of economic activity has been one of the most devastating aspects of the coronavirus crisis, and pundits are evaluating how long it will take economies around the world to recover – much less get “back to normal.” Although the crisis is without question a serious one – some 25% of all Israeli workers have filed for unemployment benefits – Israel will have an easier time recovering than many other places, a Knesset study released this week says.
The report was prepared on behalf of the Knesset Research Center’s Budget Oversight department by economists Hedva Kaplinsky and Ami Tzaddik. According to the report, Israel’s high-tech economy will bounce back considerably faster and stronger than many other economies in the world. That, combined with innate economic strength that has been generated in recent years, will place Israel in an advantageous position compared to other economies.
“In recent years growth in Israel has been stable, and economic growth has generally been based on consumer activity and service exports, mainly high-tech,” the report says. “Israel has a wide variety of those services to offer, so it will be less subject to damage in production and export” as it can appeal to a wide variety of customers.
While unemployment in Israel is currently high, over 90% of those who have applied for assistance were working two months ago, and are classified as being “on leave without pay.” While it’s likely that not all those jobs will come back when the economy does, many of those who have been laid off were at low-paying jobs, such as restaurants, hotels, etc. “The jobs are low-paying and their benefit to the economy is at a lower level as well,” the report says, adding that even before the crisis there was a shortage of workers for those jobs.
The crisis has already brought about significant technological and workplace changes, and those are likely to continue – and Israel is in a good position to benefit from those changes as well. “The globalization process in which countries exported low-paying jobs to Asia is likely to slow down, as countries seek to ensure that they can assure themselves of supply lines. The process of automation will likely speed up significantly, and Israeli technologies in these areas is likely to be in demand,” the economists said.
Also aiding the Israeli economy is the country’s relatively low level of debt. In 2007, Israel’s GDP to debt ratio was 80%, while in 2019 it was 59.9% – meaning that the country owes less per capita than it did a decade ago. Israel is one of only three OECD countries in which that figure has fallen in the past ten years; in all other countries it has risen, and in some by a sharp amount. “The drop in GDP to debt ratios in the past decade allows the country to widen the fiscal arrangements that the country can undertake to revive the economy,” the report said. “The stability of prices in the economy will enable the Bank of Israel to increase liquidity to the economy, without a sharp drop in interest rates,” it added.