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So, You Think Israel’s in the post-COVID Era? Think Again

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At a cafe by the Old City of Jerusalem after the third lockdown lifted, April 2021
At a cafe by the Old City of Jerusalem after the third lockdown lifted, April 2021Credit: Ohad Zwigenberg

If the entire world was Israel, all would be fine. Shops, malls and restaurants have been open for more than a month and at least the consumer bit of the economy is reviving quickly. Israel continues to lead the world in vaccination rates surpassed only by the Seychelles and Bhutan, and coronavirus restrictions are being lifted. It seems like the post-pandemic era is finally upon us.

It’s not. The Bloomberg COVID Resilience Ranking ranked Israel at No. 5, thanks to our successful vaccine rollout (our other metrics aren’t impressive), putting us ahead of COVID champions like China and not far behind New Zealand and Taiwan. But that just shows how Israel remains a rare exception to the rule for most of the world.

Yes, there are countries that are reopening, such as Britain and the United States, and others like China that have been open for a while. But the number of daily new COVID cases and deaths (based on a seven-day average) is still on the rise and approaching the levels of the previous wave.

In its latest projection, the International Monetary Fund sees the world economy rebounding this year, with economic activity exceeding pre-coronavirus levels. However, that’s due to a handful of winners, such as China and the U.S. Other key economies, most notably the Euro-zone, and Britain, are not expected to return to their pre-COVID level of activity until 2022.

The Israeli secret

What differentiates Israel from the rest is one factor and one factor alone,  namely that after a year of chaotic COVID policies, the government finally got its act together and got most of the population inoculated. Others, such as China and New Zealand, took another path toward conquering the coronavirus by enforcing draconian lockdown policies. The countries or regions (such as most of Europe) that haven’t been able to contain the pandemic have failed at both strategies.

Even those that have succeeded can’t be sure they have really won the war against COVID. McKinsey, the consulting firm, is predicting a return to post-COVID “normalcy” for the U.S. and Britain during the current quarter (and though it doesn’t mention Israel, it’s fair to assume that date is at least as early) and for the European Union late in the second quarter or early in the third quarter. Herd immunity should arrive a little later for everyone. There are new vaccines being developed and even COVID therapeutics.

Still, McKinsey calls the vaccine-led recovery where it’s happening a “fragile dawn” and for good reason. Vaccine resistance remains high in many places, the supply is being hogged by rich countries, and variants that may to one degree or another be resistant to existing vaccines may yet emerge. The unvaccinated part of the world creates a huge breeding ground for new, more dangerous COVID variants to arise.

The world is too big a place for little Israel to be liberated from the coronavirus. The Supreme Court has banned travel restrictions on Israeli citizens both leaving the country and returning and restrictions on  incoming tourism are expected to be lifted soon. Even with restrictions in place designed to prevent new COVID cases from being imported, they almost certainly won’t work, if only due to negligence and fraud. Israelis’ urge to travel may well trump caution.

The other way Israel can’t bank on being a tiny island free of the coronavirus is the economy.

Global supply chains are struggling to regain their balance after a year of pandemic disruptions. That has led to backups at ports in the U.S. and Israel, and among other things, a global shortage of semiconductors.  IMF figures show that global trade won’t return to pre-COVID levels this year, mainly because tourism and services (the latter a key export for Israel) remain depressed. Higher prices and even spot shortages of products are going to be inevitable.

At home, we have problems, too. Israel’s unemployment rate remains in the double digits, and the government seems at a loss about how to deal with it. Finance Minister Yisrael Katz seems to be more concerned about a fifth election than he is about ensuring Israel’s labor market undergoes a smooth transition to the post-COVID era. Instead of job training or effective incentives to get people to return to work, he seems content for them to stay on the gravy train and thank the Likud for the paid vacation at the polls. Meantime, some businesses are starved for labor, crimping economic recovery.

In fact, for all the celebrating in bars and at the Prime Minister Residence going on right now, the average Israeli will still be worse off than he or she was before COVID struck. Although aggregate gross domestic product will exceed pre-COVID levels this year, that figure is misleading. We have an unusually high rate of population growth, and when you factor that in, Israel’s per capita GDP will actually be down 1.1% at the end of 2021, compared with the end of 2019.

This is not to say that 2021 will be a repeat of Israel’s awful 2020. The Israeli tech industry is booming despite the continuing global COVID crisis. Domestic demand is expected to be the strongest driver of economic growth this year, assuming we keep COVID at bay and there are waiters available to serve us dinner. But the pandemic is still very much here, as is the risk that it will rear its head again. 

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