Macroeconomic Policy Outline for Recovering the Economy

Zvi Eckstein, Tali Larom and Avihai Lifschitz*

Since March 2020, the COVID-19 pandemic has plunged the Israeli economy into the most severe crisis in its history, concurrently with a worldwide recession. Due to the failure to adequately prepare the healthcare system, the poor management of the pandemic's containment and the economic response, and the enactment of a second lockdown, and given the current and projected morbidity rates and the economic policy which has been implemented, the Aaron Institute predicts a decline of about 10% in Israel's GDP per capita by the end of the year, among the sharpest in OECD countries. At the same time, the Israeli economy experiences high unemployment rates and low employment levels, pushing the job market back to where it had been some ten years ago.

The current policies regarding employment and national budget management contradict basic economic principles and exhibit some critical failures: the safety nets provided until June 2021 do not stipulate incentives for employment, job training and retraining; the government has not introduced any economic plan supporting growth and demands, while such a plan is most acutely needed; the inability (or lack of will) to devise a national budget plan fosters instability and uncertainty; and the introduction of aid "packages" and one-off "bonuses" only serves to increase mistrust in policy management. These failures have resulted in ongoing unemployment, which is bound to drive a large part of the younger population, especially those of underprivileged backgrounds, away from the employment market in the longer term, even after the health crisis is resolved. As a result, the Israeli economy is projected to undergo a period of significant decline in GDP per capita, impaired economic growth, and increased poverty and inequality.