Business, Unions Anxious About Economy After Coronavirus Quarantine Order

Treasury sees quarantines, drop in air cargo costing billions of shekels

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Tel Aviv stock exchange during the coronavirus outbreak, March 9, 2020.
Tel Aviv stock exchange during the coronavirus outbreak, March 9, 2020. Credit: Eyal Toueg

The government’s decision to impose quarantine on all travelers from abroad as well as a sharp rise in the number of confirmed cases of the coronavirus set off alarm bells across the economy on Tuesday.

Business and union leaders, holding an emergency press conference in Tel Aviv, warned of layoffs and business closures and said the government was doing too little, too late about the unfolding crisis.

“We’re in the midst of a crisis – the economy is bleeding. Thousands of workers have been laid off and thousands more are being put on unpaid leave. It will hurt tens of thousands of families in Israel,” said Histadrut labor federation Chairman Arnon Bar-David.

Echoing remarks by business leaders, Ben-David said the government was not giving the economic fallout from the coronavirus the same importance as the health impact.

“The healthcare system is taking emergency measures that are making our life difficult, but economic policy makers are doing nothing—they’re living in a crisis from the past. They’re sending us to yet another committee, but we need them to reach into their wallets and starting giving money to businesses before they collapse.”

Meanwhile, Finance Ministry officials, who had only reluctantly agreed to the quarantine measures out of concern about the economic impact, estimated the new quarantine rules would have a direct cost of 500 million to 700 million shekels ($14 million-$199 million) due to lost work days by 50,000 people forced to stay home for two weeks.

Treasury Chief Economist Shira Greenberg said the economy would sustain even bigger losses because the rules will bring an effective end to air travel to and from Israel.

Greenberg said the hit would come to Israel’s service exports, both tourism (which is defined as an export) and business services highly reliant on air travel. Even merchandise exports will be impacted, she said, because much of Israel’s air cargo flies on passenger jets.

The impact on air cargo will gradually be moderated by a greater reliance on maritime transport, conversion of passenger jets to cargo. Likewise, video conferencing will gradually take the place of face-to-face meetings for other business service. Nevertheless, she estimated the cost to the economy from reduced air service at between 4 billion and 4.3 billion shekels.

An almost empty isle in a supermarket in Bnei Brak, March 9, 2020.
An almost empty isle in a supermarket in Bnei Brak, March 9, 2020. Credit: Ofer Vaknin

The Finance Ministry only agreed to the wall-to-wall quarantine order out of concern that Israel might find itself in the same situation as Italy, which acted too slowly to contain the coronavirus and has now been forced to order a nationwide lockdown at a massive cost to the economy.

Treasury officials, however, sought to limit the economic damage of the quarantine by lobbying for it not to be imposed retroactively to travelers who had arrived in Israel in the past two weeks. A retroactive order would have put an estimated 200,00 Israelis into quarantine, at a cost of 1.1 billion shekels in lost workdays, officials estimated.

Greenberg estimated that the loss of Israeli gross domestic product to the epidemic would be about 1%, assuming that the coronavirus runs its course within a few months (because of the summer heat) and the economy quickly rebounds.

Its estimate is in line with one issued by the Bank of Israel the day before for an 0.7% hit to GDP. However, the treasury warned that a sustained epidemic would have a much more pronounced effect on the Israeli and world economies.

The business sector that has sustained the brunt of the coronavirus impact is travel and tourism. Besides the airlines, Israeli hotels are suffering cancellations, too, and the industry is looking at layoffs numbering in the thousands. While in past crises, mostly due to war and terrorism, a rise in domestic tourism helped fill empty rooms, this time around fears of contagion are likely to deter hotel stays by Israelis, too.

Unlike the unionized airlines, the hotel sector has the advantage of a more flexible workforce that can be downsized quickly in times of crisis, sources said.

Meanwhile, Raul Srugo, president of the Israel Builders Association, warned of the impact if Israel bans the entry of West Bank Palestinians. “Without those workers, who constitute 80% of our workforce, the construction sectors will be disabled. The cost will be 5 billion shekels a month. The government has to pay, because what it pays today will be less than what it will pay later, if it doesn’t act,” he warned.

Farmers likewise warned of shortages both due to fewer Chinese imports and a lack of farm workers, many of whom come from Asia. The government, said Dubi Amitai, chairman of the Farmers Federation, hadn’t done enough to support agriculture and would pay the price.

The Israeli consumer will learn what that means during the Passover holiday next month. “Most fileted fish comes from China and the Israeli fish-breeding industry has been almost entirely crushed. I hope there will be gefilte fish for Passover. The shortage of workers is likely to lead to harvest problems. Maritime transport has slowed and it takes longer for imported food to arrive,” Amitai said.

Economists have said that the short-term solution to the business sector’s growing problem is government loan guarantees. If the virus’ impact extends beyond two months, the next step would be for the Israel Tax Authority to allow businesses to delay tax prepayments to buttress their cash flow.

Not everyone is convinced loans are the answer, however. “We can’t take loans. You go try to get a loan with a government guarantee – they’ll ask for your mother’s dowry,” Roy Cohen, president of Lahav, the federation of self-employed people. The treasury announced a 2 billion loan fund for small and medium-sized businesses that could grow to 4 billion shekels. However, officials said that in contrast to the 2008 global financial crisis, there is no sign of a credit crunch emerging, so there is no need yet for other steps. The only exception is specific cases, such as El Al Airlines, they said.

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