Lockdowns mean skyrocketing unemployment and reduced GDP, leaving no household or business unscathed
The coronavirus pandemic, deemed to have its origins in Wuhan, Hubei Province, China, is having far-reaching social and economic consequences on a global scale. Nearly $30 trillion were wiped off global stocks in just two months (January 20-March 19).
Dr. Ohad Shaked, head of the ICT specialization in the Technology Marketing Department at Sapir College, told The Media Line that “no household or business is left unscathed by the pandemic.”
The financial impact is a result of strict measures taken by governments around the world to contain the infection, mainly in the form of partial or complete lockdowns, forcing many businesses to shut down. These measures of containment, while necessary, have put millions of employees around the world out of work.
According to the International Labor Organization, over 24 million employees are expected to lose their jobs as a result of the coronavirus pandemic.
As of March 23, 2020, nearly 80 countries have turned to the International Monetary Fund for monetary assistance. The organization projects the coronavirus pandemic will lead to a global recession similar to or worse than that of the Great Financial Crisis of 2007-2008.
Israel has followed suit and taken drastic steps to contain the infection in the country. As of March 24, 2020, the economy is in partial lockdown and since Israel initially imposed restrictions on the public on March 11, “the unemployment rate skyrocketed, jumping from 4% to 18.6%, putting an unprecedented number of Israelis out of work” says Shaked. According to official reports, over 600,000 Israelis are out of work as of March 24 and the number is expected to reach a mind-boggling 1,000,000 by next month.
An especially hard-hit population are millennials who, Shaked says, account for 1/3 of currently unemployed Israelis. According to Shaked, Israel is in “one of the biggest financial crises in its history and the worst is still ahead.”
Especially vulnerable in these times of profound crisis are small and medium enterprises (SEMs). The Israeli government promises to provide businesses with grants totaling $13 million to support their research and development programs. Finance Minister Moshe Kahlon also announced a 6,000 NIS ($1,666) grant to be provided to small businesses and independent workers. The total economic cost resulting from grants provided to businesses, unemployment benefits paid out to the population, decrease in gross domestic product, and lost income from direct and indirect taxes is projected to be tens of billions of shekels. GDP may decrease as much as 6%. That alone would cost the economy 80 billion to 90 billion shekels ($22 billion to $25 billion) if the lockdown were to last several weeks.
Shaked asserts that “the announced business grants, unemployment benefits, the deferral of payments to the National Insurance Institute by business owners, the deferral of payment of government taxes, and land taxes are insufficient to grapple with the crisis.”
“More profound strategic steps are necessary,” Shaked said. To many SEMs this will not do much in the way of helping them weather the storm.
According to Dr. Josef Cohen, an expert on SEMs at the Technology Marketing Department, Sapir College, 20% to 30% of all SEMs opened within the last five years are likely to go bankrupt due to the forced shutdown of nonessential businesses, despite the government’s announced economic package. However, “Israel entered the current economic crisis with fair economic indicators (low unemployment, high gross domestic product).”
“The budget deficit at the start of the crisis stood at about 4% but with a fair debt-to-GDP ratio of roughly 60%,” says Amiad Gurewitz, an economist and educational entrepreneur and CEO of Future Education. The Israeli economy is therefore in a better position than other countries that had similar or higher unemployment rates even before the coronavirus pandemic.”
According to Gurewitz, “The economic crisis is expected to deepen in the second and third quarters of 2020. The initial stages of an economic recovery are only expected in the fourth quarter of 2020.”