Research Department Staff Forecast, April 2020

All Press Releases In Subject:
Growth and The Business Cycle

This forecast was compiled in the midst of the coronavirus crisis, and against the background of the steps being taken worldwide to prevent the further spread of the virus. This period has an exceptional level of uncertainty—regarding the depth of the crisis, its length, and its ramifications for the medium and long terms.[1],[2]


According to the staff forecast, gross domestic product (GDP) is projected to contract by 5.3 percent in 2020, and to grow by 8.7 percent in 2021. The inflation rate in 2020 is expected to be negative, at -0.8 percent, and to be 0.9 percent in 2021. According to the forecast, the Bank of Israel interest rate in the end of 2020 is expected to be in the range of 0.0–0.1 percent, and at the end of 2021, it is expected to be in the range of 0.00-0.25 percent.


Three of the working assumptions that were used in the compilation of the forecast are of particular note. The first is that the steps taken will achieve their goal in limiting the scope of morbidity and mortality. Second, that additional limitations will not be imposed beyond those in effect as of the morning of April 5, 2020. Third, that the main part of the limitations restricting economic activity will be lifted, gradually, by the end of June. Therefore, after a marked contraction of activity in the first half of 2020, which will also be accompanied by an increase in the unemployment rate, beginning from the second half of 2020 we are assuming a gradual return to regular activity and to a path of growth.



The Bank of Israel Research Department compiles a staff forecast of macroeconomic developments on a quarterly basis. The staff forecast is based on several models, various data sources, and assessments based on economists’ judgment. The Bank’s DSGE (Dynamic Stochastic General Equilibrium) model developed in the Research Department—a structural model based on microeconomic foundations—plays a primary role in formulating the macroeconomic forecast.[3] The model provides a framework for analyzing the forces that have an effect on the economy, and allows information from various sources to be combined into a macroeconomic forecast of real and nominal variables, with an internally consistent “economic story”.


In the current quarter, special emphasis was placed on an analysis by industry in order to understand the economic impacts of the crisis and the policy steps on the economy. In particular, the forecast is based on assessments with regard to the shutdown of industries as a result of the government’s steps to combat the spread of the coronavirus. In addition, the forecast is based on the assumption that the steps taken will be temporary, which in actuality will be based on the specifics of the contagion and the load placed on hospital infrastructures in Israel.​

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