Our fate is sealed. The lamps are going out across Israel's economy as total lockdown approaches, and there’s no conceivable way we won’t be feeling economic pain in the months to come.
Seventy percent of the private sector workforce is now supposed to work from home (if they can) and violators of the containment policy face stiff fines. The Tel Aviv Stock Exchange benchmark’s TA-35 index has dropped almost a third in the past month and the shekel has been pounded. For its part, the Bank of Israel is taking the same kind of measures it did in response to the 2008 global financial crisis and bought up government bonds.
But just how long and how deep will the pain be? Is this the beginning of a recession for Israel and/or the world? Or will we all be looking back at all the hysteria this summer and wondering how we could have been so overwrought?
It would be tempting fate to assume the latter and reserve tickets while they’re cheap for an Italian jaunt next August or maybe a Coronavirus history tour of Wuhan. But the growing consensus of a worldwide recession may be premature. It’s not just that the pandemic itself contains too many unknowns: the economic impact of preventive measures like social distancing is no better understood. They’ve never been undertaken on such a scale.
A big part of the ability of Israel and the world to recover lies in the willingness of businesses and, even more so, consumers to return to the status quo ante virus. In other words, when the authorities finally say, you can come out of your quarantine now, will they really go back to their jobs, start shopping, traveling and going out to eat?
As one who has personally been suffering early-onset cabin fever since Haaretz employees began working from home Sunday, it would seem self-evident that everyone will be anxious to return to normalcy – that is, if the lockdown hasn’t left them unemployed or their employer insolvent. The odds of a real economic crunch grow with each passing week that the economy is paralyzed.
But even if the lockdown is a relatively short one of one or two months, it’s not necessarily evident that things will return to normal so quickly. The evidence of that is emerging from China, where the pandemic seems, for now at least, to be winding down.
Skeptical in China
The first economic data show that the impact of the mass lockdown was far worse than expected. But more worryingly, ordinary Chinese seem to be in no rush to return to their factories, offices and shopping malls. Some of this is due to objective reasons: Many workers are still in lockdown and there are legitimate fears of a second wave and maybe a third of the pandemic, just as happened with the 1918 Spanish flu.
But there may be a bigger and much more fundamental reason for China’s slow reawakening. Beijing mismanaged the crisis at the start and continues to censor information in favor of happy talk and about plucky citizens coping with the virus and Xi Jinping’s fearless, faultless leadership.
A lot of Chinese seem to be skeptical about what their government is telling them; it may even be the case that their trust in institutions and leadership has been fatally broken. Distrust about the epidemic itself may easily morph into broader doubts about Chinese leaders’ ability to manage a post-coronavirus recovery and the country in general, much as the 2008 financial crisis seems to have had that effect in the West.
In terms of pure economic metrics, Israel is in a good position to bounce back quickly from a limited bout of coronavirus paralysis. In a report this week, for instance, Standard & Poor’s sees in its worst-case scenario the economy growing by a little under 2% this year. That’s not exactly stellar, but it’s a lot better than the U.S. (0% to -0.5%), the Eurozone (-0.5% to 1%) or even China (no more than 3.2%, compared to 6% or more in normal times).
One reason is that Israel is starting from a higher baseline: Its economy was growing at twice the Eurozone rate before the pandemic. Another is that the shekel’s depreciation will make Israeli exports more price-competitive. Israel has strong metrics for its fiscal deficit, public debt and current account.
But S&P doesn't relate to the psychological factor. Netanyahu has been accused of exploiting the coronavirus crisis for his own political ends. Without a doubt, he is putting himself front and center of the campaign to control the epidemic.
That’s perfectly legitimate, even necessary during a crisis when people are looking for leadership. Whether he is playing politics by creating an atmosphere of hysteria is harder to answer. The epidemic is real and Israel isn’t taking more extreme measures than other Western countries.
The public may not see it that way – but if the situation turns bad, they may be much more open to the idea that they’ve been manipulated and exploited and less ready to believe the authorities when they say all is safe. Netanyahu and Friends need to convince everyone, not just his base, that he is leading, not politicking.
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