The rapid re-opening of Israel’s economy since February has triggered a rebound in activity that looks stronger than had been widely anticipated. In particular, the recovery in hospitality and leisure spending has been faster than that which followed previous lockdowns. That said, the pace of vaccination has fallen sharply in recent weeks which may suggest that hesitancy is becoming a bigger hurdle in the late stages of the rollout and that a full recovery in activity may take a bit longer to come through.
- The rapid re-opening of Israel’s economy since February has triggered a rebound in activity that looks stronger than had been widely anticipated. In particular, the recovery in hospitality and leisure spending has been faster than that which followed previous lockdowns. That said, the pace of vaccination has fallen sharply in recent weeks which may suggest that hesitancy is becoming a bigger hurdle in the late stages of the rollout and that a full recovery in activity may take a bit longer to come through.
- Israel started to lift its lockdown on 7th February and, by mid-March, almost all of the hospitality sector had reopened. A key part of Israel’s re-opening is the green badge system, which permits entry to facilities (such as gyms, restaurants and sports events) for those who have been vaccinated or have recovered from the virus. (See here.) There are now few restrictions on activity. Those that exist cover international travel and capacity at attractions and events. As things stand, there are three key lessons for the rest of the world.
- First, the easing of restrictions has been associated with a strong recovery in activity back to pre-virus levels. High-frequency data from Apple and Google show that walking and driving requests and retail and recreation visits returned to, or above, their January 2020 levels at the end of March. (See Chart 1.) Our COVID mobility tracker, which uses these data across countries, shows that the recovery in Israel has come from much lower levels and has been stronger than in other major economies like the US. (See Chart 2.)
- Consistent with this, there has been a marked rebound in spending. Daily credit card data compiled by the Bank of Israel show that the total value of transactions in the week up to 22nd March was around 15% above its January 2020 level. (See Chart 3.) A detailed look at the breakdown shows that the rebound in spending has been strongest in the leisure, tourism, and household goods categories.
- Clothing and furniture spending rose to more than 40% above its January 2020 level by mid-March. The rebound in tourism has been driven by domestic holidays. Spending on hotels, leisure and restaurants rose to its pre-virus level in March while spending on airlines and travel agents was 70% lower. (See Chart 4.)
- One important observation to come out of these data is that the rebound in spending on goods has so far been as strong as that which followed Israel’s lockdowns in March/April and September/October, while the recovery in leisure and hospitality spending has been faster. (See Chart 5.) Some of the strength over the past month is likely to reflect pent-up demand, but it is encouraging that households have become more positive about the outlook – consumer confidence rose to multi-year highs in the first half of March.
- Second, there is evidence that vaccines have been effective at reducing infections, hospitalisations and deaths and the re-opening of Israel’s economy has not (yet) been associated with a rise in new infections or hospitalisations. The average age of patients in hospital and that are seriously ill has fallen sharply since the vaccine rollout started in December and new virus infections have continued to fall. (See Chart 6.)
- Third, the pace of vaccine rollout has tailed off dramatically. Israel has fully vaccinated 88% of those over the age of 60 but the pace of rollout for the rest of the population has slowed sharply to just 0.3% of the population per day. (See Charts 7 & 8.) This is likely to reflect a combination of factors, such as difficulty in vaccinating harder-to-reach individuals in more rural areas as well as the impact of vaccine hesitancy and mis-information among certain parts of Israel’s (typically younger) population.
- This may have played a part in the government’s decision to introduce rapid virus testing (since 21st March) which allows entry to facilities for those who don’t have a green badge. If developments in Israel are anything to go by, this may be an early sign that the discussion about introducing vaccine passports in other parts of the world may give way to or be accompanied by the introduction of rapid testing.
- There will of course be more lessons from Israel over the coming months and one that we’ll be watching closely will be how inflation responds to the reopening of the economy. Consumer price data for March, due on 14th April, should offer some insights. There are a range of factors (the flexibility of the labour market and the impact of shekel appreciation) that have meant that Israeli inflation has been much lower than the rest of the world in recent years so Israel may not be the best place to look for signs of reflation. But to the extent that demand-side inflation pressures start to rise, that will send a key message to the rest of the world.
Chart 1: Israel Apple & Google Mobility Indicators
Chart 2: CE COVID-19 Mobility Trackers (%-Change from Jan.-Feb. 2020 Median Level)
Chart 3: Israel Credit Card Transactions
Chart 4: Israel Credit Card Transactions by Type
Chart 5: Israel Credit Card Transactions by Type
Chart 6: Israel New COVID-19 Infections & Average Age of Person Hospitalised and Seriously Ill
Chart 7: Israel’s Population that has been Vaccinated
Chart 8: Israel Vaccinations per Day by Age
Sources: Refinitiv, Israel CBS, data.gov.il, BoI, Google, Apple, CE
Liam Peach, Emerging Markets Economist, email@example.com