Remarks by the Director of the Bank of Israel Research Department, Prof. Michel Strawczynski, at the Industrialists Conference


·         The Omicron wave is increasing the number of people in isolation, which has taken an economic toll in proximity industries in December and January.  However, from the Israeli economy’s starting point, the high vaccination rates of the at-risk population make it possible to better deal with the fifth wave.

·         The Research Department’s staff forecast assumes that there will be no lockdowns in the foreseeable future, and that the economy will grow this year by 5.5 percent, with a further recovery in 2023.

·         The most recent published data show that in September­–October 2021, there was an increase in economic activity.  With the spread of the Omicron variant in December, there was some moderation in the expansion of activity, but with no significant impact to the consumer confidence indices.  In January, there has been a marked decline in credit card expenditures of incoming tourism.

 

Prof. Michel Strawczynski spoke today at the Eilat High-Tech and Manufacturing Conference held by the Industrialists Association. 

 

In his remarks, he discussed the state of the economy and provided an update on the most recent economic data, which show a moderation of activity in December (Figure 1, based on the Central Bureau of Statistics Business Tendency Survey), but that this was not significantly reflected in the consumer confidence indices.  According to the initial indicators based on credit card expenditures, it seems that the spread of the omicron variant has led to a retreat in the proximity industries (particularly in incoming tourism) in January (Figure 2), but that similar to previous waves, activity continued to grow in industries where proximity is not required.  Total credit card expenditures remained relatively stable, in contrast with the response during lockdowns, when there was a significant decline.

 

It seems that the effect on infection is expected to continue during the second half of January, and that no additional restrictions are expected in the foreseeable future.  It was even decided recently to shorten the isolation period for confirmed patients.  By way of background, the high vaccination rate in Israel, particularly in the older age groups (Figure 3), should be mentioned.

 

According to the Research Department’s assessments, this situation will come with a short-term economic price through a significant amount of people in isolation during January, but general lockdowns such as those that took place during the previous morbidity waves are not expected.  Based on this assessment, the Research Department estimates that growth will reach 5.5 percent in 2022, with a further recovery in 2023 that will bring the economy close to its precrisis trend.