Israel saved billions by forgoing a lockdown. Now it’s paying the price

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The Israeli government’s policy of avoiding a coronavirus lockdown at all costs has saved the economy billions of shekels. But its preferred policy of constant testing and quarantines is coming at a rising cost as the omicron variant rips through the population.

Prime Minister Naftali Bennett stood firm last summer in refraining from ordering a lockdown when the fourth COVID-19 wave hit Israel. Bennett said the previous lockdowns had cost the economy 200 billion shekels ($64 billion) and the country couldn’t afford to repeat that.

“Think for a moment: every family in Israel is 105,000 shekels in debt due to the price tag of the three lockdowns,” Bennett noted.

In fact, the real cost of the three lockdowns the government ordered in 2020 and 2021 was a lot smaller, and diminished each time a new one was called. The Bank of Israel estimates that the first one, in March-April 2020, cost the economy 5.4 billion shekels a week as economic activity dropped by a fifth on average over the course of the month it was on.

The next lockdown the following September saw economic activity decline by a more modest 12 percent, and the weekly cost ran to 3.2 billion shekels. The last lockdown, in December 2020-January 2021, cost just 3 billion shekels a week, according to Bank of Israel estimates.

The declining cost of lockdowns is due to a combination of factors, says Prof. Benjamin Bental, principal researcher and economics policy program chair at Jerusalem’s Taub Center for Social Policy Studies.

One is that more and more workers are working from home, lockdown or not. The other is lockdown fatigue: People and businesses have grown tired of abiding by the rules and have learned how to circumvent them.

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The Bank of Israel estimates are conservative, taking into account only the direct cost of lockdowns as measured in gross domestic product. But there are impacts that GDP data don’t capture, such as the cost of businesses going bankrupt, long-term unemployment and children’s lost school hours.

Cars waiting in line at a PCR COVID-19 testing facility in Petah Tikva last week. Tomer Appelbaum

Still, the lockdowns never struck the big blow to the Israeli economy many economists and government officials feared. Israel’s economy shrank 2.2 percent in the peak COVID year of 2020 – a much more modest decline than predicted. Recovery came quickly: Already in the second half of 2020, GDP grew sharply. For 2021, the Bank of Israel last week estimated that GDP grew 6.5 percent and will continue expanding at a pace of 5 percent or more annually in 2022 and 2023.

“We adjusted very quickly, and this is really quite striking. If we look at what the Organization for Economic Cooperation and Development was thinking about the recovery rate, there was a lot of pessimism – the labor market would not return to its pre-COVID level before 2025. People were thinking in terms of years,” Bental says.

Not everyone has bounced back so quickly, according to Zvi Eckstein, dean of the Arison School of Business and Tiomkin School of Economics at Reichman University, Herzliya. Low-skill jobs, often held by the young, Arabs and ultra-Orthodox, haven’t returned to the same extent as other work, he says.

A new lockdown would hit those groups again at a time when they are already struggling.

Negative impact

Even if Bennett exaggerated the financial cost of a lockdown – it appears his number was the total money the government had allocated for COVID-related spending – it was these psychological and long-term costs that made the government so hesitant to call another lockdown last autumn, much less now amid a gathering fifth wave.

The scene at Mahaneh Yehuda on Friday as people enjoyed the weekend. Emil Salman

Nevertheless, the policies the government is currently pursuing aren’t cost-free. In the absence of a lockdown, the turbo-charged omicron variant is spreading across Israel at unprecedented rates, forcing more and more people to quarantine and causing massive lines (and lost time to the economy) at testing centers.

Last week, Finance Ministry Chief Economist Shira Greenberg estimated that the cost of people being in quarantine is now running at 175 million shekels per week for every 100,000 people. The cost of imposing Green Pass proof-of-vaccination restrictions on businesses is adding another 220 million shekels of costs to the economy weekly, while the limits on foreign travel add another 100 million a week, Greenberg estimated.

“People are more cautious about leaving home to go shopping, go to the theater and to parties, and that continues to have a negative impact on the services sector and will weigh on the economy’s recovery,” Eckstein notes.

Greenberg didn’t relate to the cost of hundreds of thousands of people waiting on line for COVID tests, a problem that began to emerge as contagion levels soared. Nor did Greenberg relate to the growing number of parents taking time off work to be home with children in quarantine.

Recognizing the threat – mainly to an overtaxed health care system and less to the economy – Israel’s Health Ministry said Wednesday it would allow people under 60 and otherwise not at high risk to home test for COVID. The Health Ministry may decide as early as this week to shorten COVID quarantine from 10 to five days.

However, experts have warned that with the number of daily new cases rising rapidly and forecast to nearly double to 30,000 a day this week, lines at testing stations will likely remain long and the number of Israelis at home in isolation will almost certainly grow.

People waiting patiently in line for PCR tests in central Tel Aviv last week. Hadas Parush

Early last week, the Manufacturers Association, the trade group representing Israel’s biggest industrial companies, said that if predictions of 2 to 4 million confirmed cases over January indeed play out, a quarter of the workforce could be at home in quarantine. The cost of sick days could reach 5 billion shekels, it warned, saying the government must provide aid.

Unlike offices, factories don’t have the option of letting employees work from home. To help reduce the risk of mass absences at plants from localized COVID breakouts, the association said it was offering members on-site testing at plants. It urged the government to halve quarantine time to five days for COVID sufferers, as it is reportedly considering.

“The big threat to the economy from the current wave is due to the monstrous growth in contagion,” Ron Tomer, the Manufacturers Association president, said last week. “Our goal is to protect the supply chain and prevent shortages on store shelves,” he added.

Even if omicron is creating problems for many businesses, Eckstein says there’s no reason for the government to step in as it did in 2020.

“At this stage, it is much more like a business cycle slowdown,” he says. “The way the government should help is by expanding loan guarantees to small businesses. Big businesses have good access to finance and will recover when things return to normal in a month and a half or two.”