Prof. Amir Yaron will not change the interest rate • Banks will receive negative interest credit to enable loans to small businesses • Improvement in growth forecasts
Prof. Amir Yaron.
"Decision makers must show creativity and determination"
Photography:
Joshua Joseph
The Research Division of the Bank of Israel provides an optimistic scenario for ending the current crisis.
According to expert estimates, if no further extensive closures are imposed in the country, growth is expected to decline by 5% at the end of the year, while in 2021 growth in the economy will jump by 6.5%.
This is an improved forecast compared to expectations from August, which stated that if a general closure is imposed - as happened during the holidays - the economy will shrink by 7%.
In the optimistic scenario, the average level of activity throughout 2021 will be 5% lower than before the corona crisis, and inflation, which will rise to 0.3% this year, will double to 0.6% by the end of 2021. Unemployment will remain high and may approach 17% by the end of the year. , But it is expected to drop to 7.8% by the end of next year.
The deficit is expected to be about 13% of GDP this year, and will probably fall to 8% by the end of 2021. Thus, the debt-to-GDP ratio will rise to 73% this year, and to 76% next year.
For comparison, before the crisis the deficit amounted to 3.1%, and the debt-to-GDP ratio was 60%.
But this is the optimistic scenario.
If restrictions are imposed, such as another closure in the coming months, the economy is expected to shrink by 6.5% (a better forecast than that given in August).
Under the same scenario, next year growth will amount to 1% - and the level of activity will be 11% lower than before the pre-crisis.
Inflation will be negative, unemployment will jump to more than 20% and will continue to be double-digit even at the end of 2021 (a rate of about 14%).
The debt-to-GDP ratio will rise to 83%.
Assistance to exporters
The Governor of the Bank of Israel, Prof. Amir Yaron, presented the forecast yesterday, emphasizing the need to transfer the budget for 2021 "as soon as possible."
The governor warns of the severe damage suffered by the events, restaurants, leisure culture, tourism and other industries.
"The risk of these industries, and of households on which their livelihoods depend, is particularly great. The risk disparities between sectors may increase as the crisis continues," the governor explained.
Although Yaron noted that "the crisis has caught the Israeli economy in good shape," its consequences have already led to a sharp rise in the deficit, which is expected to grow, and with it the debt-to-GDP ratio.
The Governor also announced that he has decided to leave interest rates unchanged, and deepen the extent of monetary expansion through the extension of the government bond purchase program by 35 billion to help exporters.
In addition to the monetary committee decided on another step program to provide credit to banks against loans to small and micro businesses , which will provide the Bank of Israel's banking system loans at fixed interest rates of minus 0.1%, against the loans that banks give small businesses and small interest rate not exceeding the prime rate plus 1.3%.
"the Israeli economy is a complex reality," said the Governor, "for all decision-makers to demonstrate creativity and determination In order to formulate and implement a policy that will reduce the damage of the crisis as much as possible, and will place the economy in the best position for solid and sustainable growth in emerging from the crisis. "