Bibi versus not Bibi. A failed coronavirus policy versus a successful vaccination program. Normalization and Dubai vacations versus the flight ban and Israelis left stranded abroad by government order.
There are so many factors to weigh as Israel goes go to the polls for the fourth time inside two years on Tuesday. One is their own financial situation.
In 2020, the economy contracted the most since 1950. More than a year into the crisis, the broad rate of unemployment remains firmly in the double digits. A survey of voters by TheMarker found that 54% said they had been hurt economically by the pandemic, either through pay cuts, being fired or furoughed, or losing their business
Yet, thanks to the vaccination program, economic life has been returning to normal in Israel, faster than in almost any other country. It’s time to put all those months of distress behind us and look to a future of eating out, shopping at malls and being called back from unpaid leave. Next will be travel abroad, and in a few months, it will seem like COVID never happened. That is, if we believe the prime minister.
Should we? As bad as things were for Israeli consumers this past year, they could have been a lot worse, and that serves as a good starting line for a post-COVID recovery. In the end, the economy shrank just 2.4% in 2020, according to the latest estimate, far less than in most other developed economies. Consumer spending plummeted but that was because with stores and restaurants closed and foreign travel all but banned, there was little to spend on. Savings rates actually grew.
That said, Israel’s performance wasn’t that impressive because our population is growing relatively fast; on a per capita basis, the economy’s contraction was about average for the developed world. Our performance could have been better except that the government’s failed pandemic-containment policies, especially vis-à-vis the Haredim, left it no choice but to shut down the economy three times in less than a year.
One thing that saved us from the worst outcomes was our relatively small tourism industry and our relatively big high-tech sector. Tourism collapsed yet did no broad economic repercussions ensued, while high-tech went from strength to strength.
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It’s going to be a while before tourism recovers because so much of the world is still contending with high rates of infection. This is not a good time to be a tour guide or flight attendant. On the other hand, great days lie ahead for geeks. High-tech should keep on its upward trajectory because COVID accelerated the transition to a more digital economy.
The key will be whether there are enough Israelis with the academic degrees and skills to fill the jobs that become available. Pre-COVID, there were signs that the labor shortage would be easing. If it doesn’t, a lot of those new jobs will be exported to other countries.
Good for them, but what about the rest of us?
Israel may be known as Startup Nation, but the vast majority of workers in other sectors. Huge numbers of them were put on unpaid leave during the pandemic, so that at its peak the broad unemployment rate reached a Depression-like 23%. Even last month, while lockdown measures were still in force, the rate was more than 18%.
The good news is that the number of unemployed who actually don’t have a job, as against being on unpaid leave, hasn’t risen by very much in the past year. However, the test will be in June, when the extended jobless benefits program expires. Then, all those people on unpaid leave will find out whether they have been called back to their old jobs, or if their old jobs were eliminated.
Given that the level of job openings right now are about a third down from their pre-COVID levels, it looks like demand for labor will remain pretty slack. Real unemployment is probably going to rise and stay above pre-pandemic levels. Those at the bottom of the income ladder, the ones most likely to vote Likud and ultra-Orthodox parties, will feel the brunt of this.
Neither Netanyahu nor any other politician deserves credit for Israel’s high-tech prowess any more than they deserve blame for global tourism’s troubles. However, they can take credit/blame for the other major factor that kept the economy from collapsing: The government’s unprecedented spending on unemployment benefits and aid to business, not to mention addressing the coronavirus itself.
The money wasn’t always spent wisely, but it was spent generously enough to get the results. That seems to have been the Netanyahu strategy.
That strategy, however, has taken us fiscally speaking out of the frying pan and into the fire. The government ran a massive budget deficit last year and erased more than a decade’s worth of effort to reduce the national debt as a percentage of GDP. Payback time is upon us, or to be more precise will be upon us after Election Day, if not this one, then Election Day No. 5 or No. 6.
There are no magic formulas for avoiding a future of higher taxes and less government spending on schools, health care and infrastructure. To a degree this future was unavoidable if we wanted to avert a COVID depression, but not to this degree. Bibi has only himself to blame for the fiscal chaos and the costs it will impose on us.
The bottom line: If you’re breathing a sigh of relief that the economic hit from COVID is over and thinking of rewarding Netanyahu for saving Israel from the worst, think again.