Israel’s COVID-19 pandemic economic report card: B+

Israel’s effective vaccination program has enabled it to emerge more quickly than the US and Europe from COVID-19 lockdowns and restart the economy.

Bank of Israel Governor Prof. Amir Yaron presents the central bank’s Annual Report for 2020 to Prime Minister Benjamin Netanyahu on April 6. (photo credit: AMOS BEN-GERSHOM/GPO)
Bank of Israel Governor Prof. Amir Yaron presents the central bank’s Annual Report for 2020 to Prime Minister Benjamin Netanyahu on April 6.
(photo credit: AMOS BEN-GERSHOM/GPO)
 By mid-March, 60% of Israelis had at least one dose of vaccine and 50% had two.  As we approach the 70% level that experts say makes virus mutation far less likely, I breathe a sigh of relief. The TV news no longer bothers to report daily new cases of COVID-19, hospitalizations and deaths. No longer are intensive care units desperately overwhelmed, with haggard nurses and doctors appearing on TV and expressing desperation. Perhaps, then, it is a good time to prepare an economic report card. How well has Israel – the cabinet, Finance Ministry, Bank of Israel and the people of Israel – managed the pandemic economic crisis? How well have Israelis fared economically, compared to other countries? Are we Israelis as resilient as we claim to be?
The Bank of Israel’s annual report, signed by the self-effacing Gov. Prof. Amir Yaron, appears each year in spring with the new almond blossoms. Though dry as dust, it tries to paint a numerical picture of how we Israelis have endured and prevailed.
Overall, I award us a B+ grade. 
However, as an inveterate number-cruncher, I regret that the true picture of Israel’s pandemic economy cannot be seen in the data. Unemployment in 2020 averaged 4.4%; this does not reflect thousands who simply gave up and left the labor force (unemployed are defined as those actively seeking work). Real gross domestic product fell by only 2.5%, a huge underestimate. Wages rose 7%, not reflecting those poorly paid workers placed on leave and no longer working. 
Consumer prices fell by 0.7% and the inflation-adjusted interest rate on 10-year government bonds was negative, helping relieve the interest burden of growing public debt, which rose from 60% of GDP in 2019 to 72.6% in 2020, reflecting massive deficit spending. How fortunate it was that Israel entered the pandemic deficit-ridden year with historically low levels of public debt.
Exports remained high, at $110 billion, thanks to hi-tech, and with a decline in imports, Israel’s current account surplus (the inflow of capital) rose to 5% of GDP in 2020. 
But, nowhere in the statistics could I find even a hint of the enormous human suffering – loneliness, helplessness, pessimism, lives on hold, businesses ruined almost overnight – that the pandemic has wrought. Don’t blame the numbers – they were never meant to reflect underlying human pain. Gross domestic product is a very poor measure of gross domestic happiness or misery. 
The coronavirus pandemic confronted every society with a desperate “Sophie’s Choice.” Readers may recall the 1982 movie, starring Meryl Streep, about a Holocaust survivor mother who had been forced by the Nazis to choose which of her two children would survive and which would be taken away to die. 
The government, doctors, and economists faced a fierce dilemma unprecedented in nature – save lives or save jobs? Even the conjunction “or” is controversial. Should it instead be “both/and” (save lives and jobs)? Is Brazilian President Jair Bolsinaro right? Do you save jobs because lockdown and lost jobs cost more lives than COVID-19? (a highly dubious proposition that most Brazilians reject today). Or do you lock down the economy and save lives, because you cannot restart the economy until you control the pandemic? The long terrible year of pandemic suggests the latter is more correct – but the debate continues. 
On the one hand, health issues badly undermine economic productivity and growth. On the other, economic decline, lost jobs, bankruptcies and lost livelihoods generate health problems and despondency.
“A global economy is usually a multifaceted thing. But in the pandemic, a single unifying principle applies,” says Cornell University economist Eswar Prasad. “Countries that have done a better job at managing the virus do seem to be doing better in terms of economic recoveries.” 
Israel’s effective vaccination program has enabled it to emerge more quickly than the US and Europe from COVID-19 lockdowns and restart the economy. In contrast, Brazil’s President, who chose to essentially ignore the pandemic, finds his country in chaos. 
London School of Economics Prof. Tim Vlandas reports on a “pandemic misery index” that combines data on morbidity and ill health with data on economic hardship. He observes: “In the top worst performers, we find three liberal market economies (Canada, the UK and the US, where increases in unemployment were acute) and three southern European countries (Spain, Italy and Portugal). Although not in the top five worst performers, two small open economies in continental Europe – Belgium and Netherlands – also fared poorly. Among the good performers, we find several central and eastern European countries, including Latvia, Hungary, and Slovakia; and also Nordic countries such as Norway, Denmark and Iceland.”
Where does Israel rank? Somewhere in the middle. Not the best but far from the worst. On a scale of 1 to 40, Israel’s pandemic misery index scores 10, just one-fourth that of the US. 
Note though that these rankings change almost daily, as countries that temporarily overcame the coronavirus see new mutations sweep through the population.
While researching this column, I came across a disturbing report. 
Every four years, at the start of a new administration, American intelligence agencies together publish a “Global Trends” report, assessing where the world is headed in the coming two decades. The newest report just out throws cold water on our hope that we will soon put the pandemic and its aftermath behind us, as a bad memory. 
“The effects [of the pandemic] will have medical, political and security implications that will reverberate for years,” note the experts. It is the most pessimistic report of its kind in decades. 
I worry that the political stalemate, or in Yiddish, “plonter” (entanglement, knot), will distract us from emerging dangers. As if we did not have enough bad news to trouble us already, here are a few more items, from this report.
Middle Eastern and North African states “will continue to face mounting economic challenges during the next five years,” the report claims, “including high levels of debt, bloated public sectors, high unemployment and sluggish oil prices.” Foreign aid to the region’s poor fell by 20% in 2020 and will be slow to recover. US aid to the Palestinians, suspended by US president Donald Trump, has only recently been resumed. The region will see continued high levels of youth unemployment. Nations will in future find it hard to borrow internationally. Large refugee populations will not decrease; the huge Syrian refugee populations in Jordan and Lebanon are destabilizing those countries. 
Climate change is especially worrisome. Jordan has “one of the lowest levels of water availability per capita in the world”, a source of dispute with Israel, endangering the peace agreement. Heat waves are reaching “lethal and prolonged levels.” 
“The gap between public demands for improved services and governments’ ability to deliver is widening,” the report notes – a gap that afflicts Israel as well. Leaderless social activism has increased, but these “leaderless movements will need time to translate momentum in the street into viable political agendas”.
Middle Eastern and North African states lack “a functional-regional level organization including Iran, Israel and Turkey... to discuss shared challenges or facilitate conflict resolution. Meanwhile, regional rivalries and weak governments “are creating more openings for outside actors to exert influence” (e.g. Russia and China). Israel lives and navigates within the Mideast and its neighborhood remains highly unstable.
Are there any bright spots in this bleak report? There is one major one – technology.
“Israel’s tech sector has become a key component of the Abraham Accords, with Bahrain, Morocco and the United Arab Emirates specifically looking to benefit from Israeli help in modernizing their IT capabilities... The tech sector could serve as an engine of regional job growth if diplomatic normalization forge new region-wide supply chains. A modern tech sector... could provide a more future-oriented source of employment for the region’s educated English-proficient middle-class youth –the same social group that helped drive he 2011 Arab Spring protests.”■
The writer heads the Zvi Griliches Research Data Center at S. Neaman Institute, Technion and blogs at