4 / 818
6%
4%
2%
0%
-2%
-4%
-6%
-8%
2020
2019
2018
2017
2016
2015
2014
2013
2012
Source: Israel Central Bureau of Statistics and Bank of Israel, 2020 – Forecast
Gross Domestic Product Timeline
(
Annual
Increase
in Percentages
)
3% 3.3%
3.3%
3.9%
2.6%
4%
3.5% 3.4%
-6%
Before the Coronavirus era, 2019 was a relative-
ly good year for the Israeli economy, in which it
recorded a number of achievements, including
a 3.3% growth in product, constituting a high
growth rate compared to OECD countries (1.7%
in 2019) and a dreamy 3.4% unemployment
rate, which led to a higher, AA- credit rating ap-
proval by S&P, with a significant increase in the
World Bank’s Ease of Doing Business Index that
should facilitate driving investments into Israel.
Bank of Israel’s low interest rate contributed to
the economy’s continuous credit expansion, an
increase in fixed assets and an increase in house-
hold expenses on private consumption for the
year. These achievements fall on the backdrop
of the uncertainty resulting from a prolonged
election process that impacted the operations
of numerous industries and greatly affected real
estate and infrastructure operations, in light of
the government’s failure tomeet the deficit target
(in 2019, the total deficit of the government sector
amounted to ILS 55 bn., accounting for 3.9% of
product, compared to a planned target of 2.9%
of product, i.e., ILS 40 bn.)
Globally speaking, 2019 concluded with the
ending of the conflict between the world’s two
largest economies, the US and China, which
jointly account for 35%of global growth, with the
implementation of a new trade agreement that is
meant to improve the global economy, stimulate
growth and also have a positive impact on the
Israeli economy (which is also affected by global
operations).
Israeli Economy During the 2020
Coronavirus Crisis
Similar to other global economies, the Israeli
economy is absorbing the Coronavirus shocks.
The spreading of the virus since March has been
impacting a great number of industries, which
experienced, or still experience, from significant
disruptions in their business operations. The in-
dustries that faced the greatest disruption are
aviation and tourism, and industries that depend
on crowds to survive, e.g., the events industry
(event halls and the various service providers
to the industry) and leisure activities (theaters,
cinemas, cultural events, etc.). In practice, these
industries are expected to continue suffering
from significant disruptions, even to the point of
operational stagnation in some, until a suitable
treatment of the plague is found.
Other industries are experiencing significant
operational disruption, though they are back in
operation under certain restrictions, including the
restaurant industry, transportation industry, etc.
Furthermore, the scope of activity of certain indus-
tries is directly affected by the financial condition
in the economy and, as a result, such industries
are recording a drop in operations, including the
real estate, vehicle, retail commerce and other
industries. The high-tech industry, exposed to the
drop in global trade operations, recorded a drop
in operations and a number of enterprises began
significant human resource cuts. As of August
2020, the number of job seekers in the economy
stands at 870,000 people (if self-employed indi-
viduals who have not returned to operation are
included, this number even tops 1million people)
and the unemployment rate stands at 21.5% (at
the culmination of the crisis, during lockdown,
the unemployment rate stood at approx. 27.5%).
Despite a handful of industries that have expe-
rienced an increase in operations in light of the
crisis (food retail; tech and service companies
that provide remote-employment solutions; the
infrastructure industry that has seen numerous
projects facilitated during lockdown, etc.), the ag-
gregate business damage to industries impacted
by the crisis is significantly higher than the ben-
efit of the industries that are growing because of
it. According to Bank of Israel’s forecast, 2020
is expected to be the first year in over a decade
in which the economy records negative growth
and product is expected to shrink by 6% (under
existing restrictions, and even by a higher rate if
restrictions are re-implemented). In this setting,
private consumption is also expected to steeply
drop in 2020 by 6.5% due to the damage to
households’ occupation and incomes and the
increased uncertainty. To handle the challenge,
public spending is expected to increase, with
great importance being given to the government
strategy that will be taken to handle the crisis
(concerning spending efficiency, facilitating the
approval of the government’s budget, etc.). At the
conclusion of the first sevenmonths of 2020, the
aggregate deficit stood at ILS 70 bn., accounting
for 7.2% of product.
Developments in the Economy’s
Structure and Operations
At the conclusion of 2019, there were 610,000
active businesses in the Israeli economy, 50%of
themowned by an individual. The number of new
businesses opened in 2019 stood at 56,500, with
45,500 business closures. The net addition of
businesses to the economy amounted to 11,000
businesses, a decline compared to 2018, which
saw a net addition of 12,500 businesses.
However, in 2020, less businesses are being
opened and significantly more businesses are
closing down due to the crisis. Data for Q1-Q2 of
2020 reveal a 35%-40%drop in new businesses
compared to the previous period. As for business
closures, according to Dun & Bradstreet data
for Q1-Q2 of 2020, approx. 37,600 businesses
closed down; we estimate that over 80,000 busi-
nesses will close this year (projected increase of
80% in business closures compared to 2019).
Based on the data, 2020 is expected to be the
first year in over a decade in which the economy
shrinks (i.e., a negative net addition of busi-
nesses –more businesses are being closed than
opened). Overall, we estimate that the economy
will shrink by 40,000-50,000 businesses, a 7%-
8% drop in the number of active businesses.
Real Estate Industry
Real estate is a crucial industry in the economy.
It directly accounts for 6% of the GDP in 2019,
with an aggregate financial volume of ILS 150
billion in projects for the year. Recently, two quasi-
real estate industries have been active – the free
market, which accounted for approx. 75%-80%
of the industry, and Buyer’s Price projects, which
accounted for 20%-25%.
Currently, the industry is experiencing disrupted
4
2020
|
Dun's 100
Dun's 100
| 2020
A Review of the Israeli Economy