Israeli economy remains resilient despite pandemic
Even as small businesses and shops suffer, the high-tech industry - the engine behind Israel’s crucial export - continues to steam ahead
Despite the ongoing pandemic and the ensuing lockdowns placed on businesses, the Israeli economy remains somewhat resilient overall.
Israel is currently in its third lockdown, which is taking its toll on small businesses, but the overall economic macroeconomic data suggest that the light at the end of the tunnel may come sooner than previously expected for the economy.
Even as small businesses and shops suffer, the high-tech industry - the engine behind Israel’s crucial export - continues to steam ahead. Israeli high-tech deals reportedly increased 55% despite the devastating pandemic. The cumulative value of Israeli tech deals rose dramatically from $9.9 billion in 2019 to $15.4 billion in 2020. Demand for online shopping, home learning products and online entertainment, for instance, rose due to the lockdowns.
The Israeli shekel remains robust and is at its strongest against the U.S. dollar since 1996. A strong currency is a vote of confidence for the local Israeli economy. According to Victor Behar, director of Bank Hapoalim’s economic department, the shekel has strengthened due to a rising surplus in Israel’s balance of payments as a result of more money flowing in than out of the country.
A strong shekel will likely also stimulate more Israeli tourism overseas once the skies reopen. This was already evident with thousands of Israelis recently flocking to Dubai. While a robust currency is generally a blessing for those holding it, the downside is that it makes local products more expensive for international buyers. In order to protect Israeli exports, the Bank of Israel has therefore tried to curb the shekel’s value growth by increasing its foreign currency holdings with $17 billion worth.
Despite the heavy financial and human costs incurred during 2020, Israel’s economy appears to be less damaged by the pandemic than many other developed economies. In a recent November report, the International Monetary Fund (IMF) predicted a rapid recovery for the Israeli economy in 2021.
"The Israeli economy entered the COVID-19 pandemic from a position of strength, and the authorities mounted a large and rapid response to the crisis. Timely and decisive measures introduced by the Bank of Israel at the outset of the pandemic have helped preserve market and financial stability and access to credit. Fiscal support to the health system, households, and businesses has also helped soften the economic impact of the pandemic," the IMF report concluded.
Initially, IMF predicted that the Israeli economy would contract with 5.9% in 2020. However, the numbers have now been revised to 4.9%, according to IMF economist Iva Petrova. In other words, the pandemic will have less impact on the Israeli economy than previously expected. The IMF is expected to publish a more detailed and updated report on Israel’s economy in the near future.
In another sign of confidence for Israel’s economy, the international credit-rating agency S&P retained Israel’s strong AA- rating. However, S&P warns that another inconclusive Israeli election could affect the country’s future credit rating negatively.
There are also other promising signs pointing toward a gradual recovery for the Israeli economy. The number of home purchases in Israel rose 54% between the second and the third quarter of 2020, according to a fresh report published by the Chief Economist's Department of the Israeli Ministry of Finance. The rapid increase in the number of homes bought and sold indicates that much of the Israeli public still has considerable purchasing power.
In addition, Israel’s economy and export businesses are expected to benefit from the recent normalization agreements with the affluent Gulf States and Morocco.
The All Israel News Staff is a team of journalists in Israel.