The Governor’s remarks at the joint discussion with the Minister of Finance on the economic impacts of the coronavirus
Governor of the Bank of Israel Prof. Amir Yaron participated in a joint discussion with Minister of Finance Mr. Moshe Kahlon and professionals from the Ministry of Finance and the Bank of Israel, in which they analyzed the possible effects on Israel’s economy of the outbreak of the coronavirus.
Following are the main points made by the Governor, Prof. Amir Yaron, at the discussion:
“With the outbreak of the virus, I instructed that a team be established at the Bank of Israel to analyze and follow the economic aspects of the outbreak, and their possible macroeconomic impacts on Israel. To that end, a designated team was established at the Bank, which is examining and analyzing the developments on an ongoing basis from various perspectives: global markets and the local market, the effect on the real economy, and the effect on the financial system and in particular the exposure of financial institutions and the banking system.
The outbreak of the coronavirus in China is generating uncertainty with regard to future economic activity in Israel and abroad, and to the expected impacts on inflation and the financial markets. To the extent that the outbreak of the virus is halted in the coming months—similar to the baseline scenario guiding the assessments of most international economic institutions, the overall effect on the global economy is expected to be limited, and the growth rate is expected to compensate in the following quarters. According to the Bank of Israel’s assessment, in such a scenario a marked macroeconomic impact is not expected in Israel, beyond the effect on various specific companies, even though China is a significant trading partner in a range of industries.
China’s centrality in the global economy alongside the uncertainty regarding the magnitude of the spread of the virus create significant economic uncertainty. The uncertainty is based in two main areas:
1. The extent of the impact that the virus will have on additional economies, including Israel’s, beyond China’s economy
2. The time it will still take until the event passes.
To the extent that the crisis persists and spreads to additional countries, and particularly if strict preventive measures will be required in Israel, a more significant impact is expected, the scope of which is difficult to assess at this time. The Israeli economy’s strong fundamental economic data—including a low debt to GDP ratio and unemployment rate, current account surplus and a high level of foreign exchange reserves, and a robust banking system, increase the economy’s resilience. The emphasis at this time is that this is a “revolving event” such that the conclusions to date must be related to with considerable caution, and there is great importance in continuing with ongoing monitoring and analysis, among other things within the framework of the Financial Stability Committee that includes all the financial regulators, so that if necessary we will be able to respond accordingly and rapidly.”
Credit:Minisrty of finance spokesmanship.