The Israeli economy contracted in the first quarter of 2020 amid the coronavirus crisis, the largest decline in 20 years, at an annual rate of 7.1%, the Central Bureau of Statistics reported on Monday.
The decline came when the Bank of Israel said it would keep its base rate unchanged at 0.1% in June, apparently with the aim of giving it the option to bring it down to zero in the face of worsening conditions.
The central bank also revised its forecast for full year growth to minus 4.5%, an improvement over the minus 5.3% forecast in April. However, the outlook for 2021 has been reduced from 8.7% to 6.8%. Consumer prices would fall by 0.5% this year and remain practically unchanged in 2021.
The forecast raised muted hopes for a rapid recovery from the coronavirus crisis, unlike in 2009, when the Israeli economy recovered quickly from the global financial crisis. As a result, she predicted that the base rate would be between zero and 0.1% in the second quarter of 2021.
“The corona virus crisis has led to an unprecedented decline in economic activity and a sharp increase in the number of job seekers. The gradual lifting of government restrictions is reflected in economic activity, but the damage has been significant and is expected to continue.
“Assuming there is no additional wave of infection and restrictions tightening again … growth will resume in 2021, but the unemployment rate will still be higher in late 2021 than at the end of the crisis,” said the bank.