Manufacturers Bracing for Recession

Scope remains relatively minor but worse could be coming, warn some economists.

More and more indicators signal that the Israeli economy is slowing, one of them being layoffs in multiple sectors. Some 1,300 jobs have been lost in advertising and media, high-tech and food manufacturers, and the finance sector since July, and that doesn't include the roughly 1,000 people earmarked for dismissal at Partner Communications. But, elaborate the experts, Israel is not in recession: nor is there certainty it will be.

Yet Israeli employers seem to be preparing for that eventuality by paring back staff. The number of layoffs remains small compared with the total workforce, which consists of about 3 million people. But the diversity of the sectors in which employers are scaling back, apparently to brace for harder times as Europe reels, speaks for itself.

'Job security isn’t a luxury,' says one sign at a protest by Pri Hagalil workers facing dismissal.
Yaron Kaminsky

In some cases there are specific reasons for the layoffs. For instance, the cellular companies are suffering mightily from the double whammy of genuine competition approaching fast and regulatory crackdowns that reduced their income. In their case, layoffs cannot be ascribed to bracing for broad economic recession.

Heading for meltdown?

"Israel cannot evade what is happening in the world, especially in Europe and the U.S.," said Avi Simhon, economic adviser to the Finance Ministry.

Will recession hit? He can't say, "but the signs are worrying," Simhon says. "There's a very big cloud over the world economy. Yesterday it was Greece, today it's Italy and tomorrow it could be the U.S."

All that said, Israel is entering this period of uncertainty with strong fundamentals, a properly structured budget and a reasonable deficit, he added.

"The Israeli economy is highly vulnerable," said Daniel Doron, head of the Israel Center for Social & Economic Progress, pointing out that trickles have a way of turning into floods. "I don't understand how people fail to see that the world is traveling like a freight train toward extreme economic collapse. That will mean Israel's clients exports will be poorer, and competition in the international markets will be fiercer," he says.

Dr. Moty Neuman, a psychologist and manager of the career counseling department at Pilat-Nekudat Mifneh screening and placement, concurs that the layoffs - still minor for the time being - are because of the ripples coming from Europe.

"It has to be said to the credit of employers that they aren't hastening to wave the ax, despite the approaching crisis," Neuman said. Most are tending to the passive approach: not replacing workers who leave, for instance.

The Manufacturers Association says the scope of layoffs today is reminiscent of 2008-2009, a time the world economy sank into crisis. "A third of Israel's exports go to Europe and a bit under 30% goes to the U.S.," said a source at the association.

In other words, almost all Israeli exports go to economies standing on shaky legs, said that source, who waxed highly pessimistic: The governments of the West are out of resources for rescue and, in that manufacturer's opinion, the dismissals Israel experienced so far are a drop in the ocean of the layoffs to come.

Media firms cut back

Signs of slowing business are evident at Israel's media companies, where layoffs are the order of the day. But there's one unique case, that of Channel 10. It's been starved of cash by its controlling shareholders and has fired 30 people, including television producers, in the last two months. But the websites Walla! and Nana10 have also been laying off people.

The stated layoffs at Channel 10 do not paint an accurate picture, though, because most production workers are freelancers, says Assaf Amir, chairman of the producers' guild. He estimates that while Channel 10's future hangs in the balance, hundreds of people are out of work.

Ad agencies are up in arms over the possibility that Channel 10 might collapse, leaving Israel with exactly one commercial television channel, Channel 2. "It's enough to glance at the statistics for Israel's TV advertising market to grasp the magnitude of the potential harm," said Mody Kidon, the chairman of the Israel Advertising Federation, who projects a steep drop in spending on ads that will trigger waves of layoffs in that sector as well.

Not all concur that the horizon looks grim and some warn of self-fulfilling prophecies. One such is Dr. Dan Ben-David, head of Tel Aviv University's Taub Center for Social Policy Research in Israel, who thinks the stats should be taken with caution. "A few dozen people in advertising get fired out of thousands of employees. That's a drop in the sea," Ben-David said, adding that dismissals in the food industry could be seasonal. "At present Israel is in good condition. Unemployment is less than 6%," he says.

Neuman rebuts that the European recovery in 2009-2010 had been based on capital injections, not true recovery, and that act can't be repeated.

Like other indicators, the air transport of cargo failed to provide a clear-cut picture, but the signs are ominous. Transport of cargo through Ben-Gurion International Airport was 11% lower in October 2011 compared with the same month of 2010, according to an internal Airports Authority report. Cargo transport by air fell to 21,600 tons this October, from 24,200 tons a year ago. But the longer the range of a measurement, the more accurately it probably describes the situation, and from the start of the week, cargo transport by air has fallen by a lesser 2.3%.

With reporting by Zohar Blumenkrantz and Nati Tucker.