COVID Is Back, but Hell in Israel Is Murky

For every factor that could send the Israeli economy back into recession, there is one that could save it. It all depends if and how long the next lockdown is.

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Out, damned spot; out I don't say - Roni Einav, in "Macbeth without words", Gesher Theater
Out, damned spot; out I don't say - Roni Einav, in "Macbeth without words", Gesher TheaterCredit: ליה גלדמן
David Rosenberg
David Rosenberg

These days, a lot of us can’t help but feel like the sleepwalking Lady Macbeth crying, “Out, damned spot; out I say. One, two –  why, then ‘tis time to do’t. Hell is murky.”

Lady Macbeth’s bloodstained hands were a figment of her guilty imagination, but for us, the spot of COVID that refuses to go away is very real.

Mere weeks agothe mass vaccination program seemed to have ended the coronavirus threat. Virtually all the restrictions were lifted and the economy was bouncing back, with the exception of persistently high unemployment.

Now, mask mandates and Green Passes are back and the threat of another lockdown is looming.

The old debate of which should get priority – public health (by imposing more draconian restrictions to contain the virus) or the economy (by keeping them to a minimum and preventing a rise in unemployment and poverty) –  is back too. But this time the terms of the debate have changed, for better and for worse.

The worse side is more evident. The public has had its fill of lockdowns, which didn’t have a lasting effect the first three times they were imposed. That COVID fatigue is evident in a recent poll showing shocking levels of public skepticism about the coronavirus and measures being taken to contain it.

Under the circumstances, it is hard to believe that the government will be able to enforce it better this time than before, especially as vaccinated people tend to feel they are pretty well protected.

What will likely happen is that the public part of the lockdown will be enforced (in other words, shutting down business activity because it is relatively easy to do)  while the private part of it (such as friends schmoozing and family get-togethers) will not. As a result, the economy will take another hit, but the contagion won’t be contained to the degree it needs to be.

Macbeth without words, Gesher TheaterCredit: YouTube

Meanwhile, the government has fewer fiscal resources than before to counter the economic impact. The tens of billions of shekels spent in the first year of the coronavirus nearly broke the bank, pushing up the budget deficit to as much as 12.1 percent of gross domestic product, three times its pre-COVID level. National debt jumped 10 percentage points in a single year, wiping out a decade’s worth of effort to bring it down.  Israeli taxpayers will be footing the bill for that one big blowout year for a long time to come.

Can't just turn spending back on

Still, even if it was often ham-fisted, that spending helped spur the economy and mitigate the impact of the pandemic. Gross domestic product shrank just 2.4 percent and – thanks to increased government assistance –  the percentage of Israelis living under the poverty line and the number of businesses that went under actually fell.

The money spigot gradually closed in recent months, as the economy climbs out of the pandemic funk The treasury can’t easily afford to re-open it. A month-long lockdown is manageable, but if that doesn’t work, its ability to support the economy for a prolonged period will be severely constrained. The budget deficits for this year and next are supposed to be 7 percent and 3.4 percent, respectively. Another year of couple-digit red ink would be disastrous.

Lady Macbeth dies in the final act, probably by suicide. But we, with our coronavirus spot, don't necessarily face such a tragic ending, assuming the lockdown is contained.

For one, the vaccines aren’t quite the miracle they were touted to be after the delta variant emerged, but they leave the inoculated better defended than before.

Secondly, if the government can delay a lockdown till September (which is by no means assured given the speed at which COVID is spreading), it will coincide with the High Holidays. Over the 30 days in September, no less than 14 are holiday days. Add in holiday eves, when much of the country shuts down, you get three more.

Of course, the temptation to violate the lockdown by family visits and public prayers is higher than usual, but assuming the lockdown doesn’t extend for more than a month, its impact on the economy should be contained.

The third thing working in Israel’s favor is its high-tech sector, which not only demonstrated incredible resilience during the coronavirus year but did a booming business. Tech workers easily made the transition to remote work and the digitization of so many activities from education to shopping has boosted demand for technology. Even an extended lockdown and/or other social distancing measures should have no impact.

Finally, there are some factors working in favor of the government and its ability to help the economy weather a limited lockdown. Thanks to a booming high-tech sector and a brisk real estate market, the treasury’s tax revenues have soared close to 19 percent so far this year. In July, the government barely ran a deficit at all. More than a fifth of the 202 billion shekels ($62.5 billion) allocated to counter COVID hasn’t been spent yet. In short, there is some money to spare.

Moreover, in contrast to the coronavirus year, when we had a finance minister (Yisrael Katz) more interested in promoting his boss’ political agenda than in managing the economy, our current finance minister (Avigdor Lieberman) has proven to be an unexpectedly responsible leader. The treasury has recovered from its days of dysfunction and demoralization it suffered under Katz.

Business leaders have a right to be anxious about what lies ahead, but only the worst-case scenario of an extended lockdown or lockdowns poses a real threat. Right now, that doesn’t seem to be in the cards.

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