These data include the unemployed, workers expelled from the IDF and workers laid off due to the corona crisis and therefore not participating in the labor force. It should be noted that the data are not deducted from seasonal effects.
A relatively sharp rise in the “wide” unemployment rate was recorded in the first half of January this year, during which the third closure came into force (dated 8.1.21), which began at the end of December 2020. As can be seen in Figure 1, the “wide” unemployment rate stood About 16.7%, which is about 680,000 unemployed, of which about 380,000 workers were expelled to the IDF. These are numbers that are close to those of the second half of October 2020, the end of the second closure period.
Although this is a lower unemployment rate at the beginning of the tightened third closure compared to the second closure, it should be borne in mind that the data are not deducted from seasonal effects, so it is possible that the greater unemployment rate during the Tishrei holiday closure was affected.
In conclusion, In light of the fact that the tight closure, which includes a reduction in the volume of economic activity, including the closure of the education system and movement restrictions, will continue throughout the second half of January, it appears that the rise in unemployment will continue. The tight closure is also reflected in the mobility data published by the Bank of Israel, which indicate low mobility in the workplace, travel stations and retail and leisure, similar to previous closures.
At the same time, the decline in credit card expenses (based on data from the Bank of Israel) continued in the second half of January. Looking ahead, there may be a relatively rapid recovery of economic growth in Israel in 2021, despite the difficult picture of morbidity in January 2021, and the slowdown in the rate of immunization in recent days. Recovery could be underway provided a “critical mass” of vaccines is achieved and in the absence of a negative impact of mutations on vaccine efficacy, likely by the end of the first trimester of 2021.
The recovery may be based on the release of “occupied demand” of private consumption, the resumption of investment in fixed assets and as the world begins to recover, later in 2021, exports will continue to expand. Against this background, and in light of continued government support for the unemployed, the “broad” unemployment rate is expected to remain at a relatively high level in the first half of 2021.
The corona crisis has hit the labor market unevenly; The leading industries in terms of workers in the Knesset are the services and trade industries
Economic activity throughout most of 2020, and also in early 2021, was subject to significant restrictions. These restrictions have had an uneven effect on the various industries. The industries that were directly affected by the restrictions on social distance, the prohibition of gatherings and more, were hit the hardest, and in fact even during periods of easing the restrictions, the activity in these industries remained very low.
These are mainly the service industries, and above all: hospitality and food services, art, entertainment and leisure, management and support services and more. As a result, the highest proportion of workers expelled from the IDF was in these industries.
In addition, it should be noted that even in “labor-intensive” industries, such as education and trade as well as industry, there is a relatively significant share of workers in the IDF, although their rate is not among the highest.
On the other hand, in the public sector (public administration industry) very few workers were outsourced (as of December 20). Figure 2 shows the distribution of the number of workers expelled in the industry by industry, according to our estimate, which reflects the trends described.
Looking ahead, the industries most severely affected by the corona crisis are likely to be the ones most positively affected by the progress of the immunization move that is ultimately expected to allow the restrictions to be lifted and returned to activity. Until then, no real change in the activity and employment indices of these industries is expected.
A sharp increase in Israel’s debt / GDP ratio in 2020, but the level remains not high in international comparison
The corona crisis has weighed heavily on the fiscal profile of the local economy. The need for extensive government support, along with a decline in government revenues, led to a record deficit in the historical budget, of 11.7% of GDP. In an international comparison, Israel’s deficit was relatively high compared to most other advanced countries, and the forecast for 2021 is still a relatively high deficit of about 8% -9% of GDP. This increase in the deficit, along with the contraction in GDP in 2020, led to a sharp increase in government debt relative to GDP.
With the outbreak of the Corona crisis arose the global need of the various governments to support economic activity through budgetary assistance to households and businesses directly affected by the crisis. The global volume of government subsidies has reached about $ 14 trillion, higher than the peak volume recorded during the 2008-09 financial crisis, according to the recently published International Monetary Fund (IMF) Fiscal Monitor report.
The attached Figure 3 shows an international comparison (among advanced economies) of the volume of government support (as a percentage of GDP), broken down by total direct budget expenditure (excess expenditure due to the crisis and loss of income) and external budget expenditure (loans and liabilities).
Despite the large government deficit in 2020, the volume of government support in Israel was low compared to the average of the advanced countries (AE). This, even when comparing the total budget expenditure (6.9% of GDP compared to 12.7%) and the total extra-budgetary support (2.9% compared to 11.3%). This finding may explain, at least in part, the fact that although the decline in Israel’s GDP (so far) has been moderate in international comparison, the harm to private consumption is markedly negative.
In addition, it should be noted that the composition of the government program in the average of the advanced countries included a relatively significant component of expenditure on “retention of workers”, in order to prevent disconnection of the employee from the employer due to expulsion of workers and layoffs, a conservation component.
In addition, the implementation rate of the items related to the crisis exit plan, with “growth accelerators” and employment encouragement, are relatively low expenditure items in the government program in Israel. This development may make it more difficult for the economy to exit the corona crisis, while closing the output gap in the shortest possible time.
Israel’s (government and public) debt / GDP ratio has been declining since 2003, which was halted in 2020 amid the corona crisis. The government / GDP ratio rose from 58.5% in 2019 to 71.6% in 2020, with public debt (including local government debt, which is in line with international definition and therefore comparable to other countries) rising from 60% in 2019 To 73.1% of GDP last year.
The Treasury announcement states that the increase in the debt / GDP ratio in 2020 is lower than earlier estimates, against the background of the strengthening of the shekel (against the dollar and the euro), inflation and low interest rates, and a more moderate decline in GDP relative to early forecasts.
It is estimated that in a scenario in which there will be an economic recovery of Israel in 2021, it will be possible to return from 2022 to a route of “budgetary convergence”, while reducing the deficit and returning to a declining route of the debt / GDP ratio. As can be seen in the attached Figure 4, although Israel’s debt increased in 2020 and will increase further in 2021, comparatively to other developed countries it is not high, although, it is slightly higher relative to the comparison countries (according to the definition of finance).
In conclusion, The Financial Stability Report for the second half of 2020, published by the Bank of Israel in recent days, stated that Israel’s credit profile, as reflected, among other things, in government debt data and future fundraising capacity, shows resilience to economic shocks, thanks to the developed high-tech sector. Natural gas, monetary flexibility, current account surplus, strong foreign accounts, relatively high growth potential and more.
On the other hand, the weaknesses of the economy, in the eyes of credit rating companies, which have the power to influence the creditworthiness of the economy, are: instability in the political system, geopolitical tension, and demographic difficulties especially in the labor market. So far, the rating agencies have confirmed Israel’s rating, but there is a possibility of reducing the rating horizon in the event of a longer-than-expected prolongation of the economic recession and / or a lack of budget and a sharper-than-expected increase in debt data.
Writers: Dr. Gil Michael Befman and Yaniv Bar