Israel’s gross domestic product contracted by 2.4 percent in the coronavirus year of 2020, the Central Bureau of Statistics (CBS) said on Tuesday in its release of preliminary figures, a drop far less severe than the government and most private sector economists had expected.
The treasury had anticipated that the lockdowns and other pandemic restrictions that caused unemployment to soar would shrink GDP last year by 3.3 percent. The Bank of Israel was even more bearish, forecasting a 3.7 percent drop.
The CBS estimate means the Israeli economy fared much better than most of its peers in the Organization for Economic Cooperation and Development, which expects that member economies will show an average decline of 5.9 percent for 2020.
“The economy in 2020 surprised to the upside and was especially good in light of the three closures imposed on households and business,” Leader Capital Markets chief economist Jonathan Katz told Reuters.
Although growth in the fourth quarter fell sharply from the 41.5 percent rebound it enjoyed in the third, fourth-quarter annualized growth was still a fast 6.3 percent.
The numbers were boosted by a 6.3 percent annualized rise in fourth-quarter growth, helped by a jump in vehicle imports ahead of a tax hike at the start of 2021. Fourth-quarter GDP was just 0.4 percent less than it was a year earlier, the statistics bureau said.
The preliminary estimate for 2020 came six weeks later than usual. The statistics bureau usually releases its figures December 31, calculating numbers based on data for the first 11 months of the year and trends of previous years. This time, the coronavirus made constructing preliminary figures more difficult and led to a delay.
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The bureau will be releasing GDP data based on new data in the coming weeks and the final figure may be subject to considerable change.
Besides providing insights into the state of the economy, the final figure will have implications for fiscal policy since key metrics, like the deficit and public debt, are conventionally benchmarked as a percentage of GDP.
A bigger economy will make the ratios more favorable at a time when the government is spending and borrowing heavily to mitigate the impact of the coronavirus.
For example, the Finance Ministry’s chief economist estimates that the 2020 budget deficit ballooned to 11.7 percent of GDP last year. But, based on its preliminary GDP figures, the statistics bureau estimates the deficit was a narrower 11.2 percent.
Although Israel’s economy weathered the COVID crisis better than widely expected last year, the decline in GDP was the steepest since the government began keeping records in 1950. The economy has been battered by closed businesses, hundreds of thousands on unpaid leave or unemployed and whole sectors of the economy, such as retail and tourism, paralyzed by lockdowns and other restrictions.
Israel is gradually emerging from its third lockdown in the space of a year, with the coronavirus cabinet on Monday approving a plan to reopen street shops, malls and open-air markets to the general public, beginning on Sunday.
The vaccination program, which was due on Tuesday to have reached the four million threshold, has inoculated a bigger percentage of the population than any other country in the world.
Nevertheless, Katz predicted that the first quarter of 2021 would be weak due to the tail end of the lockdown. However, growth in the final nine months of the year will be very strong – as much as 9 percent growth in annual terms, he added.
The Bank of Israel is forecasting a 6.3 percent increase in GDP this year, if the rapid pace of the vaccination campaign is maintained. Goldman Sachs expects 7.5 percent growth this year.
“Growth will be exceptionally strong in 2021,” said Goldman economist Murat Unur, citing the accelerating vaccine drive. “We think that this will enable a relatively quick opening up of the economy, providing a burst to growth.”
Among OECD countries, Israel logged the second-best performance, after Norway. However, on a per capita basis, Israel did less well. Because its population grew a relatively fast 1.8 percent in 2020, per capita GDP dropped 4.1 percent, similar to declines in Norway, Finland, Sweden and the United States.
In addition, consumer spending declined sharply, by 9.4 percent on an aggregate basis last year and by less than 11.1 percent on a per capita basis. The latter was the third-worst in the OECD, after Spain and Britain.
The statistics bureau said the consumer spending figures are important because they provide an indication as to the change in people’s standard of living. Against that, Israeli GDP got a boost from exports.
In the 2020 fourth quarter they were up 4 percent from the same time last year despite a flagging world economy and a strong shekel. Versus the third quarter, however, exports dropped at 14.9 percent annualized rate.
Investment in fixed assets, such as machinery and equipment, nearly doubled from the third quarter on an annualized basis due to an increase in vehicle purchases, a volatile figure that has often led to sharp swings in quarterly GDP data in recent years. Government spending rose 29 percent last year contributing a 0.7 percentage point of positive change to overall GDP.