Analysis |

With No Clear Goal for Second COVID Lockdown, Israeli Economy Could Spiral Out of Control

Decision-makers are forced to confront worrisome statistics: On the one hand, there is the rise in the infection rate, On the other hand, the levels of economic freedom are narrowing

Sami Peretz
Sami Peretz
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A police officer directs vehicles at a check point during Israel's nationwide lockdown to fight a surge in coronavirus disease infections, in Ashdod, September 21, 2020.
A police officer directs vehicles at a check point during Israel's nationwide lockdown to fight a surge in coronavirus disease infections, in Ashdod, September 21, 2020.Credit: AMIR COHEN/ REUTERS
Sami Peretz
Sami Peretz

The coronavirus cabinet is scheduled to convene Tuesday to decide whether to make the lockdown more stringent and further reduce economic activity.

Decision-makers will be forced to confront worrisome statistics. On the one hand, there is the rise in the infection rate, with the number of people per million population testing positive exceeding that of the pandemic-stricken United States. The number of severely ill COVID-19 patients being treated in hospitals has also increased. Many hospitals say they are becoming overwhelmed, and a number have begun sending coronavirus patients to other hospitals.

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On the other hand, the decision-makers know the clear and immediate price that was paid when the lockdown was called last week. Since Thursday, 41,924 people have joined the ranks of the unemployed. They had worked in hotels, restaurants and other businesses forced to close when the lockdown went into effect Friday.

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A man closing a shop amid Israel's second nationwide lockdown, in the Old City of Jerusalem, September 21, 2020.
A man closing a shop amid Israel's second nationwide lockdown, in the Old City of Jerusalem, September 21, 2020.Credit: Ohad Zwigenberg

This lockdown is less rigid than that of the spring, but Israel’s infection rate is much higher, and the levels of economic freedom are narrowing. What was possible to do during the first lockdown is much harder to do in the second one, because the cost of the crisis is going up by billions of shekels a week, and because the level of obedience is dropping as the crisis of confidence in the government soars.

Under those circumstances, decisions are harder than during the first round. The cost of a lockdown in its current format, during the period of the Jewish holidays that began Friday evening this year, is an estimated 7 billion shekel ($2.03 billion) drop in the gross domestic product. The Bank of Israel three weeks ago gave two possible scenarios – the pessimistic one and the optimistic one – for 2021. The optimistic one saw GDP dropping by only 4.5%, but that was based on there being no lockdowns after this month. That outlook is already irrelevant. Then there is the pessimistic forecast, which predicts a 7% drop in GDP (equivalent to 100 billion shekels), and is based on waves of infection that will require additional lockdowns before the end of the year. That scenario sees an unemployment rate of 13.6% by year’s end, meaning 550,000 unemployed. By way of comparison, before the coronavirus hit Israel, there were only 150,000 people unemployed.

The government has supposedly learned something from the first lockdown and is now offering grants to keep workers employed, rather than encouraging them to be furloughed. But in many cases, this incentive is meaningless because workplaces like hotels, restaurants and wedding halls are closed, and no incentive will persuade those employers to keep their workers on. Those workers will be immediately begin swamping Israel Employment Service offices and the National Insurance Institute website. Many of them will be doing this for the second time in six months, and there is grave concern that in many cases their situation won’t be temporary this time. Not all businesses can survive what Prime Minister Benjamin Netanyahu has described as an “accordion” of closures and openings, in accordance with infection and hospitalization rates.

The main problem for the cabinet and the coronavirus cabinet is that the objectives of this lockdown are not clear. The economic results are clear – a drop in GDP and jobs – but there won’t necessarily be a drop in the rate of infection, as government officials, including Deputy Health Minister Yoav Kish, have said. The suffering, both social and economic, resulting from the lockdown must be offset by a reduction in the incidence of illness. Instead, before anyone in the government can point to the goals of this lockdown, the coronavirus cabinet is already debating whether to intensify it.

That’s why dealing with the lack of compliance is so much more difficult, as could be seen in the holiday eve dinner held by the Balfour Street protesters, in the businesses in various places that defied the guidelines and remained open, in the people who jumped into the sea, the protests by Haredim and even the aides to the prime minister who broke quarantine after returning from the United States.

The government has lost control of the pandemic, public confidence in the government has eroded (even though most Israelis are in fact complying with the rules) and under these circumstances it is likely to also lose control of the economic crisis.

The Bank of Israel’s pessimistic scenario is en route to being realized, even though we have a coronavirus government, a coronavirus cabinet and a coronavirus czar. It seems that the more coronavirus agencies there are, the more sick and unemployed people we’ll have. Before the coronavirus cabinet decides to intensify the lockdown, it must set clear and credible objectives that the public can understand and identify with, but above all that they believe the government can uphold. Otherwise, the central bank’s pessimistic forecast may turn out to be optimistic.

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