On March 25, 2020, as part of Hebrew University’s second series of special webinars on the coronavirus pandemic, economics professor Karnit Flug gave a sobering overview of the economic costs from COVID-19, in Israel and abroad. A global recession seems inevitable, she said, although its severity will be determined by the duration of the current crisis. It’s still too early to assess its full impact.

Professor Karnit Flug

Professor Karnit Flug

In her presentation, Prof. Flug, who was Governor of the Bank of Israel for five years until 2018 and received her MA in economics at HU in 1980, listed the consequences on national economies of sweeping restrictive measures on people meeting in groups or even leaving their homes if they’re not employed in essential services. The shutdown has caused a major drop in market value, reduced investments and an acute downturn in consumer spending, affecting all sectors of the economy.

Like other countries, Israel is suffering the results. Prof. Flug said the Bank of Israel estimates the country will have a 50-billion shekel loss in output by the end of April if the shutdown persists, and a 90-billion loss by the end of May, even more if restrictions on people are tightened further. Until three weeks ago, Israel’s economy, which she described as quite resilient, had been in great shape – record high employment, reasonable government finances, banks had liquidity and debt relative to GDP was good. It’s expected that if all restrictions are lifted by mid-April, Israel’s economy will rebound strongly although that can be affected by global trade. If world trade recovers slowly, it will hamper Israel’s economy whose recovery will depend in no small part on the global situation.

The government’s response to the crisis is also critical. Prof. Flug said so far it’s been relatively modest – increasing credit to small and medium businesses, loosening of regulations around loans, while the Bank of Israel adds liquidity to the market and also purchases large quantities of government bonds.

A major obstacle for taking stronger fiscal measures is the protracted political crisis under which the government is operating on a temporary budget based on the 2019 budget. As a result, the government is restricted to spend only 1/12th of the 2019 budget until the Knesset (Israel’s parliament) passes a new budget.

To view the slides from Prof. Flug webinar, see below.

To view a recording of Prof. Flug’s webinar, please click here.