The coronavirus pandemic caused the Israeli economy to shrink at an annualized rate of 28.7% in April-June, the biggest decline in at least four decades since the government began providing quarterly figures, preliminary figures released Sunday by the Central Bureau of Statistics showed.
The biggest decline in gross domestic product until now was in the final quarter of 1995, when it dropped an annualized 12.9%. The second-quarter 2020 drop follows a revised 6.8% annualized decline in the first quarter, thereby meeting the widely accepted definition of a recession of two consecutive quarterly drops.
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In the first half of the year, which includes January and February when the impact of the pandemic had yet to be felt, GDP contracted at a 101% annualized rate, compared with 3.4% growth in the second half of 2019. The brunt of Israel’s lockdown measures occurred from mid-March to mid-May, although even as the economy has reopened most indicators show a very slow pace of recovery in activity.
The statistics bureau’s figures on job openings, which were also released Sunday, pointed that up. As an indication that employers were revving up operations, the number of openings rose sharply in May and June, to 46,468 and 53,681, respectively, from a low of 35,578 in April. In July, they shrank to 52,501, the bureau said.
On a year-on-year basis, Israeli GDP was down 7.8%, which is about what the treasury and Bank of Israel have forecast as the contraction of GDP for all of 2020. Prime Minister Benjamin Netanyahu cited that figure Sunday, noting that the drop was “half the decline in the European states; it is almost the lowest in the world.”
The European rate of decline was 14.1% year-on-year in the second quarter. The difference has a lot to do with the timing and extent of lockdown measures ordered by governments as well as the growth momentum they enjoyed prior to the pandemic.
But even by the statistics bureau definition of a quarter-on-quarter change in annual terms, Israel’s economy held up relatively well. According to the statistics bureau, GDP in Britain plunged at a 59.8% rate in the second quarter, by 55.8% in Spain, by 41% in Italy and by 20% the Netherlands.
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“The contraction in the second quarter was relatively modest compared to other developed markets,” said Leader Capital Markets economist Jonathan Katz. A contraction of as much as 6% is projected in 2020, which would be the first annual contraction in Israel’s history.
That said, the figures are preliminary and may change for better or for worse as more data come on. In the volatile environment of the coronavirus crisis, the statistics bureau warned that the numbers issued Sunday may be subject to much greater revision than usual. Even seasonal adjustments, such as the number of workdays during the quarter, have been complicated by the crisis.
“There are not enough data relating to the coronavirus period to enable us to calculate seasonal factors more accurately,” it admitted. Revised data will be published September 16, it said.
For now, however, data show that the pandemic struck all segments of the economy, apart from public spending. That figure – which doesn’t include transfer payments such as unemployment benefits or allowances, surged at a 25.2% annualized rate in the quarter as the government poured money into the economy to counter the effects of the pandemic and the lockdown.
Consumer spending plummeted at a 43.4% annualized rate, the bureau said. Investments in fixed assets dropped at a 31.6% rate while exports declined at a 29.2% rate. Katz noted another positive was a 5.5% increase in nontourism exports after a drop the prior quarter, reflecting solid demand for Israeli high-tech services such as cybersecurity and information technology.
Imports fell an even sharper 41.7%, although at a much smaller 3.5% discounting imports of defense equipment, raw diamonds and ships.
National accounts are calculating in such a way that a decline in imports increases GDP because GDP is a measure of domestic economic activity, not of goods and services brought in from overseas. However, the drop in imports is not a positive sign, since it reflects drops in consumer spending as well as spending by the business sector on imported raw materials, components and machinery.
Reuters contributed to this report.