Israelis Emerge from Lockdown; Will the Israeli Economy Be Healthier in 2021?

Israelis emerged in February 2021 from the latest lockdown, which has taken its toll on businesses. Its lockdown was one of the most aggressive in the world, but it has not been without sacrifice. According to Reuters, Israel’s Central Bank estimates the winter lockdown has cost the Israeli economy $1.3 billion weekly.

 

One of the major lasting effects of the lockdowns is the resulting effects on businesses, many of whom have had to declare bankruptcy.   Even businesses that manage to survive inevitably had to lay off some workers during the lockdowns, which resulted in increase in unemployment rates.

 

In its efforts to rescue such businesses, the Israeli government has allocated $29 billion to businesses that have lost 25% of their revenue or more.  While these funds have helped many businesses, they have come at a cost by placing a heavy strain on government budgets.

 

While the Israeli unemployment rate fell from 18% earlier on in the pandemic to 15% in November 2020, the mid-double digit rates reflect the devastation of service and tourist industries.  Workers in these industries must show up in-person, unlike other types of industries in which employees can work from home and conduct business via Zoom.

 

When taken together, high levels of unemployment are likely to persist for the near future.  An impending recession may make recovery slower than expected.

 

Will There Be Green Shoots?

As green shoots emerge early after an unseasonably warm winter in Israel, will green shoots also arrive early for the economy?

 

One reason for optimism is that Israel’s economy was quite strong in recent years prior to the start of the COVID-19 pandemic.  In the past decade, Israel had cut its unemployment rate in half, raised the standard of living, and cut its public debt.

 

If Israel takes the right steps, it is likely to see economic recovery in 2021.  OECD Chief Economist Laurence Boone commented, “Israel needs to keep up its efforts to protect people and firms, revive growth and avoid the crisis aggravating key challenges of high inequalities and productivity disparities in high-tech and traditional sectors.”

 

According to an OECD survey, Israel’s Gross Domestic Product (GDP) is likely to grow 2.9% in 2021 versus a drop of 6.0% in 2020.  Israel can achieve growth by focusing on its world-leading strengths, in the highly-skilled technology and healthcare industries.  At the same time, Israel must focus on improving training and employment opportunities for its low-skilled workforce. As vaccinations become more widespread and restaurants and service-oriented businesses open, the traditional business sector should see a rebound.

 

The Endurance of Israel’s Healthcare and Tech Industries

The two sectors that have performed well during the COVID-19 crisis happen to be those that generate the most wealth for the Israeli economy: Technology and Healthcare. At the IMPROVATE-Innovation Conference, which was held online in Tel Aviv in January 2021, former Bulgarian President Rosen Plevneliev credited Israeli innovation for revolutionizing healthcare in Eastern Europe and Balkan states.

 

Plevneiev said, “A lot of money will be invested in coming years to improve healthcare systems. There is European money available, government money available.  We need to bring you here to the market and you can do good business here.”

 

Merger and Acquisition (M&A) activity, which forms the bedrock of growth in the Technology and Healthcare sectors, came to a grinding halt during the COVID-19 pandemic.  Despite this setback, Israeli companies were able to raise capital at a record level of $9.5 billion in 2020, exceeding the prior-year amount by 20%,  according to Startup Nation Central.

 

Israeli startups Payoneer and WalkMe were the primary contributors of that record capital raising, with the companies going public at valuations of $3 billion and $4 billion respectively.

 

Strength in Healthcare and Tech, Gradual Recovery for Service and Tourism

Although service industries and tourism were reeling from COVID-19, opening up after lockdown will unleash pent-up demand that will likely spur a gradual recovery.  In the meantime, Israeli banks have made efforts to extend credit to customers, and the Israeli government has provided relief packages to businesses.

 

The Technology and Healthcare sectors have remained strong throughout the COVID-19 pandemic and should continue their upward trajectory.  As the pandemic subsides, M&A activity is likely to come roaring back.  In the meantime, new Israeli Initial Public Offerings (IPOs) generate enthusiasm in the tech sector.

 

Because the fundamentals of the Israeli economy are strong relative to those worldwide, the stocks of Israeli companies, particularly those in the Technology and Healthcare sectors, should be poised for continued success.

 

The Jerusalem Portfolio provides fractional ownership interests in over 100 Israel public companies through a professionally managed portfolio of Israeli ETFs.  Contact us for more information on The Jerusalem Portfolio, and embark on a way to invest in a manner beneficial to you and to Israel as well.