“At this stage, despite the specific impacts experienced by firms in a variety of industries, there is no evidence of a significant macroeconomic impact on the Israeli economy.”
So said the Bank of Israel’s monetary committee Wednesday afternoon, about the coronavirus.
It seems that the bank probably issued its statement just a little prematurely, not unlike the Titanic officer who noted just before the ship’s encounter with the iceberg that "the sea was like glass, so smooth that the stars were clearly reflected."
In fact, calm seas are a sign that icebergs are nearby, as it was subsequently discovered.
Israel’s iceberg was on the horizon by the end of Wednesday, when was discovered that a teenager may have passed on the virus to thousands while a teenager who attended a soccer game was discovered to be carrying the disease.
Meanwhile, the foreigners arriving from those same countries now have to show they can quarantine themselves in Israel (spending 14 days in a hotel room), which effectively ends almost all travel from them. Travelers from the United States may be next.
Israel has also banned gatherings of over 5,000 people. Even those of less than 5,000 are likely to be cancelled since no one will want to take responsibility for a modern day Typhoid Mary attending. Businesses have already begun taking precautions of their own, independent of the authorities.
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Up to this point, Israel’s Population Authority estimates that the latest Health Ministry directives will put as many as 70,000 people into quarantine. All of this will weigh heavily on economic activity very quickly.
The coronavirus hasn’t massively arrived in Israel, at least yet: as of Thursday, there were just 15 confirmed cases in a country of nearly nine million people.
It is true that the discovered cases could be the tip of the iceberg, and that numerous people could be infected without knowing it. But we have already now declared ourselves a Coronavirus Republic, and the draconian measures by the state and the public's reaction may wind up causing more economic harm than the epidemic itself.
How much damage no one can begin to guess. It hinges to a large degree on factors that are mostly out of human control, such as how many people are infected, mortality rates and how long it will take for the virus to exhaust itself. But it also hinges on factors completely within our control, namely the steps governments and people take in response. It seems that although it isn't necessary yet, Israel is proudly undertaking the kind of policies that will maximize the economic damage.
“We are in a better situation because at the outset I ordered a policy of overpreparation and not under-preparation. We were compelled to take harsh – even very harsh – measures in order to slow the pace of the spread of the disease in Israel,” the prime minister announced on Wednesday. “It could be that it is among the most dangerous of such pandemics in the past 100 years.”
The election is over (although knowing Bibi, he’s got one eye trained on the risk of a fourth one), but here is positioning himself as the fearless, determined leader defending Israel against its enemies. Iran and the Palestinians are so yesterday; today it’s the subfamily Orthocoronavirinae, in the family Coronaviridae, order Nidovirales, and realm Riboviria and it’s just as scary.
We haven’t come close to taking the extreme measures that China has, but the panic atmosphere that the government is creating is putting us on the same path. Know that China is going to pay a heavy price economically for its policies, which were almost certainly due to the leadership needing to look like they had the problem under control after ignoring it too long.
Even in its best-case scenario, the Organization for Economic Cooperation and Development has cut its estimate for Chinese economic growth this year by a fifth. It has lowered global economic growth from an anemic 2.9% to a more anemic 2.4%. If things get really out of hand and the epidemic lasts longer and infects more people, global economic growth may sink to 1.5%. Some of the biggest economies, like the Euro area and Japan, may sink into recession.
As Netanyahu and the Bank of Israel both said on Wednesday, Israel is in a strong position to cope with the virus economically. Unlike Italy, say, economic growth is robust, our debt burden is low, we have ample foreign currency reserves, and a current account surplus.
But all this doesn’t add up to a lot in the face of a worldwide slowdown, especially as the government is running a big budget deficit already. It won’t be able to easily spare the cash to take fiscal measures to counteract the coronavirus’ effects. Already, El Al Airlines, which has felt the brunt of the virus fallout, has been told no financial aid will be coming anytime soon.
The Bank of Israel said Wednesday it would do its part, too, if the epidemic demands it, by making cash available to tide businesses over the crisis. But like central banks everywhere, it doesn’t have many tools to do it. The bank’s base lending interest rate is already a very low 0.25% and to lower it into negative territory is a risky, untried move.
The real solution for the economic risk is for the coronavirus to die out on its own. Overpreparation may speed the time it takes for that to happen, but meanwhile, the medicine may kill the patient.