Israel Economy Takes Historic Hit But Tops Expectation for Worse

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Israel’s economy started 2020 with its worst quarter in at least 25 years, after a near total economic shutdown at home and abroad amid the coronavirus pandemic hammered private consumption.

Gross domestic product contracted a seasonally adjusted, annualized 7.1% in the first three months of the year, for the first quarterly contraction since 2012, according to the Central Bureau of Statistics. That was better than all but one estimate in a Bloomberg survey of seven analysts, whose median was for a decline of 13%.

Key Insights

  • Private consumption fell roughly 20%; exports held up best of any segment with a quarterly drop of just under 6%, while imports plummeted about 28% in the quarter
  • The Israeli government imposed relatively stringent restrictions on movement and business from March to combat the spread of the coronavirus outbreak, but the economy is now showing signs of recovery as the lockdown lifts
  • Although central bank officials previously forecast a contraction of 5.3% this year, some analysts expect them to publish a revised outlook alongside their interest rate decision later Monday, which could show a more upbeat view given the relatively quick rebound
  • Before the outbreak, private consumption and trade had led the Israeli economy to 30 consecutive quarters of growth and output was expected to converge to around potential of a roughly 3% expansion this year

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  • The Bank of Israel is expected to hold it key rate steady on Monday after playing a leading role in the country’s crisis response, as we explain in our preview. And here is a profile of Israel’s new Finance Minister Israel Katz, and the challenges he faces given his aspiration to be prime minister someday.

— With assistance by Harumi Ichikura

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