Talk of Another COVID Lockdown Is Sending Tremors Through the Israeli Economy

Post-COVID-19 recovery could be stalled by another lockdown, Finance Ministry warns ■ Restaurants already report drop in business ■ Experts warn of permanent changes to economy

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Carmel Market in Tel Aviv
Carmel Market in Tel AvivCredit: Hadas Parush

The Israeli economy, which has been rebounding smartly since the end of the last of three coronavirus lockdowns earlier this year, is bracing for a chilly autumn amid increasing talk of a new lockdown to contain the resurgent COVID-19 epidemic.

Finance Ministry Director General Ram Belinkov told a press briefing on Thursday that the treasury strongly opposed imposing a lockdown, as health officials have been urging. He warned that previous closures cost the economy billions of shekels.

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“A lockdown is the easy solution. We don’t want to take it, at least not at this stage,” Belinkov said. “It’s a solution for those who do not want to deal with this situation. The damage that closure does financially and mentally is extremely severe. Every measure must be taken to avoid it. “

The government's coronavirus cabinet approved a series of measures due to come into effect on Sunday to address the pandemic. They include requiring anyone entering restaurants and other public places to present a Green Pass, proof they have been vaccinated. Business leaders said the restrictions so far pose little threat to economic activity.

However, the limited measures so far have failed to contain the spread of COVID-19, and officials have begun talking about a lockdown, most probably in September when the Jewish holidays will already reduce economic activity for close to a month.

Prime Minister Naftali Bennett hinted on Wednesday that a lockdown was on the way, saying “We want to keep Israel open, but we know when to apply the brakes.”

But Belinkov said it was too early to be discussing lockdowns and warned that even talking about it harmed businesses by creating needless panic.

Restaurants brace for the worst

Indeed, Bennett’s remarks and the latest restrictions had exactly that effect on Tamir Barleko, who holds the franchise for the BBB and Arcafe restaurants in Tel Aviv. He was about to sign a lease for a new location in the city this week when he got wind of Bennett’s remarks.

“I have a dilemma now – I don’t know whether to sign the contract or not,” he told TheMarker. “Maybe I’ll add a clause that gives me an escape option if we really go into a lockdown again.”

A shuttered restaurant in Tel Aviv, during a lockdownCredit: Meged Gozani

Some – but not all – restaurateurs say that even though the new restrictions haven’t yet come into force, customers have already begun canceling reservations. “Every remark like this immediately reduces business 10 to 15 percent. People don’t know what’s happening at the moment, whether they already need a Green Pass or not,” said Barleko.

Restaurants are one sector of the Israeli economy that has not entirely bounced back from the COVID-19 crisis. On the one hand, restaurants and cafés have been so packed that many have felt free to raise menu prices; on the other hand, the industry has shrunk.

The Israel Restaurants Association estimates that the number of eateries of all kinds has shrunk to 12,000 from 14,000 before the pandemic. The association has warned that a six-week lockdown would force another 1,500 restaurants and cafés to shut.

Meanwhile, employment has dropped even more sharply – to 130,000 from 200,000 – partly because restaurants are struggling to hire staff and partly because they have undertaken efficiency measures.

Persistent unemployment

That situation points to a wider problem the Israeli economy is facing, namely stubbornly high rates of unemployment, even as other economic activity recovers. The Central Bureau of Statistics reported on Thursday that the broad unemployment rate in the first half of July edged up to 9 percent from 8.8 percent in the second half of June. The increase came even though Finance Minister Avigdor Lieberman ended unemployment payments for most people on unpaid leave starting in July, arguing that the benefits were deterring them from re-entering the job market.

Economists pointed out that the July figures are not seasonally adjusted and that the unemployment rate traditionally rises at the start of the summer vacation season. Economists said the figure for the second half of July may show a big improvement.

However, if a lockdown is imposed in September, more Israelis will join the unemployment rolls. The peak unemployment rate was smaller in each successive lockdown, but the last of them saw the rate climb as high as 19.1 percent, well over double the current rate.

Avigdor Lieberman at a Yisrael Beiteinu event in May.Credit: Emil Salman

Beyond the lockdown, economists are worried that high unemployment will remain a feature of the Israeli economy for a prolonged period due to structural change wrought by COVID-19. Restaurants are just one example.

“The coronavirus crisis created an opportunity for firms to become more efficient,” said Prof. Avia Spivak of Ben-Gurion University of the Negev. “Companies have found that they can manage without some of their ‘cheap’ workers, whose marginal productivity is the lowest. These are workers who are having problems finding a new job because they have no special skills.”

The Bank of Israel is now forecasting an average broad unemployment rate this year of 10.8 percent. Since the rate was 12.4 percent in the first half of 2021 – a period that included the elevated unemployment rate during the third lockdown – the forecast assumes a fairly sharp drop in unemployment in the second half.

If unemployment doesn't fall, or even worse, rises, that will not only upset forecasts for the overall economy but the treasury’s assumptions about tax revenues and spending, as the cost of paying unemployment benefits rises again, treasury officials warned.

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