Israel Economic Snapshot – Summary of 2020 and forecast for 2021
The global economy
The year 2020 was characterized by a global recession, in the shadow of the outbreak of the coronavirus epidemic and its spread. Thus, the global slowdown in growth in 2020 is estimated at 4.2%, after positive growth of about 3% in 2019. Most of the slowdown occurred in the Eurozone countries, where GDP contracted by 7.2% overall, while in the United States GDP contracted by 3.7%, and in developing economies GDP contracted by 3.3%. China, the country where the epidemic began, is the only country to show positive growth in 2020, at a rate of about 1.9%.
Before the outbreak of the epidemic, 2020 actually began with a new trade agreement between the two major economies in the world, the United States and China, ending a conflict that had lasted for about two years. In routine years, the United States and China together account for 35% of global growth, so that ending the trade war by implementing a new agreement should have benefitted the global economy
Estimates of GDP growth for 2020 by regions, in percent
Source: The International Monetary Fund, OECD, Bank of Israel, and Dun & Bradstreet processing
The Israeli economic sector
The Israeli economy, like many local economies around the world, was materially affected by the coronavirus crisis in 2020. Thus, the economy showed a contraction in GDP of about 3.7% in 2020, after positive growth in GDP of 3.5% in 2019. Most of the contraction in the GDP is due to a decrease in private consumption (by about 11%) and investment in fixed assets (by about 7.5%). On the other hand, an increase in public consumption (at a rate of about 3%) and the strength of the high-tech industry, which continued to present extensive activity and to constitute a significant component of exports from Israel during the crisis, moderated the decline in growth.
In addition, job insecurity was felt throughout the year in the labor market. During both lockdowns, the number of jobseekers reached about 1 million people, and the general unemployment rate in the economy at the end of the year was about 16%.
Under the influence of the coronavirus, during 2020 business activity was disrupted in many branches of the economy, in particular those that depend on gatherings of people in order to conduct their regular business activities, including aviation, tourism and hotels, the events industry, the leisure culture industry, restaurants, and more. In addition, under the lockdowns commercial activities and the activities of various service providers were disrupted. Upon learning the extent of the coronavirus crisis, the government began formulating and implementing a plan to deal with it, which was later expanded three times. This was in order to reduce the damage to the business sector and to households. Assistance is provided to businesses through grants, credit, state guarantees, participation in property tax payments, as well as unemployment benefit payments to employees who have been taken out of the labor force. The total cost of the government’s measures amounts to about NIS 150 billion, financed mainly through raising debt in Israel and abroad.
On the other side of the fiscal measures that have been taken, the government has recorded a sharp decrease in tax collection, due to the decline in economic activity. The combination of the implementation of assistance programs for victims of the crisis on the one hand, and a decrease in government revenues on the other hand, has increased the government deficit to about 12% of GDP, and the debt-to-GDP ratio rose to 73% -75% (estimate). And yet, Israel’s situation is good relative to some of the countries of the world. The decline in GDP (3.7%) is similar to the rate of decline in GDP in the United States, and lower than the average decline in GDP among developing countries and the countries of the Eurozone (estimated at 7.2%). The level of debt to GDP in Israel remains significantly lower than the debt-to-GDP ratio among OECD countries, on average (estimated at 120% -115%). Israel’s good position relative to other countries, and the strength of the Israeli economy, in spite of everything, led three credit rating companies, Fitch, S&P, and Moody’s, one after another to confirm Israel’s high credit rating in 2020. This allows Israel to continue to raise debt abroad at low interest rates.
Another achievement for Israel is the normalization of relations with the United Arab Emirates, Bahrain, and Morocco, on the way to economic cooperation with these countries, which has already begun, especially with the United Arab Emirates, which is expected to consume services from Israel in the coming years, with an emphasis on high-tech.
The year 2020 ends with political uncertainty, after the government failed to approve a budget and has dispersed, headed for another election, the fourth within two years (the additional election campaign is not expected to adversely affect Israel’s credit rating). Therefore some of the challenges that characterized the economy in 2020 are expected to accompany it also into the first half of 2021.
Developments in the business sector – data on opening and closing of businesses
In recent years, some 55,000 businesses have opened in Israel each year, while 40,000-45,000 businesses have closed each year. In 2019 56,500 businesses opened, and 45,500 businesses were closed (the addition of businesses to the economy in 2019 amounted to some 11,000 businesses).
In 2020, in the shadow of the coronavirus crisis, the state of business in the economy changed, so that fewer businesses were opened and more businesses closed. Thus, in 2020 around 40,000 businesses were opened, a decrease of about 30% compared to 2019.
The main reason for the decrease in opening businesses in 2020 is the uncertainty that has characterized the economy. It is very difficult for business owners to make business decisions in conditions of uncertainty, when there is no certainty about the expected revenues, along with difficulty in managing cash flow. In light of the high rate of unemployment that prevailed throughout the year, the purchasing power of the public was reduced, adversely affecting the viability of starting a business (due to the expected negative impact on business revenue and cash flow, as stated). Also, usually in order to open a business the business owner is helped by savings and financial support. However, against the background of the crisis, the public’s savings have also decreased (some of the savings were even diverted to the purchase of apartments, especially in the third quarter), and at the same time there was a decrease in access to funding sources. In the last months of 2020, the economy has entered a kind of “coronavirus routine” and business activity has adapted to the new reality. Accordingly, in recent months we are seeing changes in areas of business on the part of businesses, and retraining the unemployed to start businesses in various spheres in the spirit of the times, such as e-commerce, deliveries, various ventures, courses and training, home cooking and baking, and more.
Regarding business closures, in 2020 under the coronavirus crisis almost 75,000 businesses were closed, a figure that represents a 65% increase in the number of business closures compared to 2019, when around 45,000 businesses were closed. Accordingly, the probability of closing a business increased by about 12%, compared with a probability of closing of about 7.5% in 2019. Among the prominent branches in which a high number of business closures were recorded: restaurants (around 4,000 restaurants and food stalls closed), building and renovation contractors (some 2,000 businesses closed in this field), transport and transportation (some 1,200 businesses closed the field), fashion and clothing stores (around 950 closed in this field), and more.
Business openings and closures, and the probability of closing a business
In light of the data, 2020 is the first year in a decade in which the economy has shrunk (meaning that the net addition of businesses is negative – the number of business closures is higher than the number of business openings). In total, in 2020 as a whole the economy contracted by around 35,000 businesses, representing a 6% decrease in the number of businesses in the economy. At the end of 2020, there are approximately 573,000 active businesses operating in the Israeli economy.
The riskiest and the most stable branches in the economy
The riskiest and the most stable branches in the economy, 2020
* Source: Dun & Bradstreet
According to Dun & Bradstreet data, in 2020 the riskiest branches of the economy were the restaurants, bars, and cafes, the travel agency branch and the fashion branch. On the other hand, the stable industries in the economy are high-tech, the food industry and the pharmaceutical industry.
The riskiest branches of the economy, 2019 – 2020
- Restaurants, bars and cafes – traditionally considered a high-risk sector, even during routine times (without economic crisis), mainly due to the constant need for innovation, the existence of changing trends and inclinations, low customer loyalty, high price sensitivity, the lack of managerial knowledge and experience of some business owners, and so on. Added to this in recent years are regulatory changes that increase the operating costs of business owners in the sector – regulating and taxing the wages of waiters (the “Tips Law”), and imposing a levy on the employment of foreign workers, allowing the tax authorities to charge restaurants retroactively for foreign workers in previous years. The coronavirus crisis, with its three lockdowns, also increased the level of risk in the industry, leading to an increase in the number of closures in the industry and a significant decrease in industry revenue as a result of the take-away and deliveries model only, without sitting in the restaurant (for greater detail – see Spotlight on the restaurant branch). As in 2019, in 2020 this industry is still the riskiest according to the Dun & Bradstreet indices.
- Travel agencies sector – suffered significant disruption in 2020, due to the global stagnation in the tourism and travel industry. There are some 450 travel agencies in Israel, and it is estimated that the decrease in the volume of activity in the industry in 2020 is estimated at about 75% compared to 2019, where marketing vacation packages in the second half of the year to “green” destinations such as the UAE and the Seychelles did not compensate for the significant decline in the industry. The industry is the second most risky industry in 2020, while in 2019 the industry is not listed among the most risky industries in the economy.
- Fashion industry – The fashion stores sector suffered from many disruptions to its operations during 2020, especially during the three lockdowns, because based on the mix of products sold in stores, it is not considered an essential industry under government definitions. There is a difference between the big chains, most of which operated an e-commerce site even before the crisis, and independent fashion stores, which are at higher risk. In recent years, the sector has been characterized by high risk as a result of competition with foreign shopping sites (transactions exempt from VAT and customs) and the increase in purchases made by Israelis abroad as part of “shopping trips”, made possible as a result of the open skies reform. In 2020, in the shadow of the coronavirus crisis, the level of risk in the industry remained high (as a result of disruption to trade under restrictions and lockdowns, decreasing private consumption by the public and more – for greater detail, see Spotlight on the fashion industry), and the industry is considered the third riskiest sector (after being the second riskiest branch in 2019).
The most stable branches of the economy, 2019 – 2020
- The high-tech sector (excluding start-up companies) – activity in the sector was characterized by a boom as a result of global demand for high-tech services during the global coronavirus crisis. The sector continued to register growth also in 2020, and the share of high-tech in total exports from Israel continued to increase, following the trend of 2019. The sector was found to be very stable in 2020 under the crisis. It was also among the stable branches in 2019, and was the third most stable industry.
- The food industry – the food industry experienced a growth in activity in 2020 under the crisis. The public stockpiled a great deal of food before and during the first lockdown period. With the stagnation of the tourism and aviation industries, for most of the year a greater number of citizens were found in Israel at any given moment, compared with normal periods when some citizens are abroad. In addition, restaurants and cafes remained closed in the lockdowns and have not returned to their full format. Against the background of these trends, this year the public purchased more food in chains and food stores. In total, revenue in the food industry increased by about 10% in 2020. In accordance with the market conditions, many food producers were found in our databases that had diverted their activity from the disrupted institutional market to focus on the retail channel.
- The pharmaceutical industry – traditionally considered a stable industry, usually also among the stable industries in the economy. In 2020 it was again included among the stable industries, among other things in light of the presence of a greater percentage of the population in Israel at any given moment (more people consuming drugs and pharmaceuticals), and due to pharmacies remaining open throughout the year (the sector is considered essential under the government’s definitions, and continued to operate as normal).
The financial services industry was characterized by an increase in borrowers’ risk, as a result of an increase in the general level of risk in the economy under the coronavirus crisis. Thus many borrowers, with the approval of the Bank of Israel, postponed loan repayments during 2020. In the period of March – November 2020, the banking system approved approximately 860,000 applications for deferral of loan repayments, in a total amount of some NIS 10.8 billion. In line with this, the banks increased their provisions for credit losses and recorded a decline in the profitability indices. Uncertainty also prevailed during the year in the non-bank credit market. The chemicals industry was also characterized by a decline in revenues and profitability, against the background of the high global decrease in consumption of oil and its by-products during 2020 (mainly due to the paralysis of the global aviation industry, along with non-use of motor vehicles during lockdowns around the world). As a result, the financial services industry and the chemicals industry, which are generally among the stable industries, declined steadily out of the list of the top stable industries in the economy in 2020.
Changes in the level of risk in selected branches
Source: Dun & Bradstreet
According to Dun & Bradstreet data, in 2020 in the shadow of the crisis, large changes were recorded in the risk indices among some sectors of the economy, at high rates relative to the average year. Thus, the rates of change in the level of risk in the above sectors are significantly higher this year compared to the rates of change in risk recorded among these sectors in 2019.
The most significant change in the level of risk in 2020 was seen in the travel agencies branch, in light of the global stagnation in the tourism and travel industry (an increase in risk of 39% in 2020), while the hotel and restaurant industries also experienced a steep increase in level of risk in 2020 (16% and 15%, respectively), although this increase has been moderated to a degree as a result of a high rate of receiving grants from the government. A high increase in the risk level of the construction industry (15%) was also recorded, due to a decrease in the sale of new apartments, especially for contractors focused on “affordable housing” projects, lack of good access to funding sources and grants, and a decrease in construction starts. Under the industry trends, some 2,000 companies in the field of construction, development and infrastructure, as mentioned, fell into financial failure during 2020, double the number of failures in the industry in 2019, which amounted to around 1,000 contractors. The increase in risk in the construction industry brings with it an increase in risk in the metal industry (which constitutes an input to the real estate industry), by about 10%. In the metal industry, a decrease in industry productivity and exports was also reported. Other industries that are characterized by an increase in level of risk: transportation (at a rate of 8% ), fashion stores (13%) and fuel trade (6%).
Industries that are characterized by a decrease in the level of risk in the shadow of the crisis are the various segments of the food industry (there was a decrease of 10% – 11% in risk in the food industry, in food import and trade activities, and in the retail channel – food chains and food stores), in light of the increase in food purchases by the public, the high-tech sector (a decrease of 10% in risk) which continued to grow and export services during the period despite the crisis, the pharmaceutical industry (a decrease of 7% in risk) and pharmacies (decrease of 6% in risk), and the computer industry in all its segments (there was a decrease of 5% – 6% in risk in computer services and computer stores) in light of the increase in the public’s use of technological devices (transferring the labor market to remote work, and outlining the education system in Israel for distance learning by the older age groups during the year increased demand and purchase of computers and related equipment, as well as the services required as a result).
Payment ethics in the economy
In 2020, in line with the state of businesses in the economy, there was a significant deterioration in the agreed payment ethics in the economy. The deterioration began in December (2019) -January (2020), before the crisis broke out, following the postponement of payments mainly by government institutions due to the failure to meet the government deficit target at the time (the deficit in 2019 was 3.9% of GDP, exceeding the deficit ceiling set by the government of 2.9% of GDP), a long period of transitional government, and the lack of an approved budget since the beginning of 2020.
Thus, after an average of 93 credit days in the first eleven months of 2019, in December 2019 the agreed credit days in the economy rose to 97, and in January 2020 climbed to 100 days. After a decrease to 99 days in February 2020, in March, with the outbreak of the coronavirus crisis in Israel, the credit days increased to 108 days. During the first lockdown in May the number of credit days also stood at 108 days, and in October, under the second lockdown, the credit days stood at 104 days. In November, credit days rose to 107 days.
In total, during the coronavirus period, credit days in the economy increased from 93 (average credit days in 2019) to an average 104 credit days in 2020 (a total increase of 11 credit days). In addition, during 2020 approximately 20% of payments were not made punctiliously, and the average depth of arrears in 2020 was 36 days (after an average depth of arrears of 32 days in 2019).
The development of agreed credit days in the economy
Source: Dun & Bradstreet
Spotlight on the high-tech sector in Israel
Even before the outbreak of the coronavirus crisis, Israel was considered a high-tech power, given its establishment as a source of creativity and innovation, and on the basis of the quality of its human capital. In this context, it is a global R&D center for many international companies, with more than 300 international high-tech companies operating R&D centers in Israel.
In recent years, the share of high-tech exports in total Israeli exports has risen, mainly as a result of the accelerated growth of high-tech services, as part of the acceleration in global demand for advanced services – mainly computing, software, and research and development services, which constitute the main growth engine of Israeli exports. This trend continued in 2020, when the demand for Israeli high-tech services continued to rise, and accordingly, the share of high-tech exports out of total exports continued to rise. Thus, in 2020 the total export from Israel is estimated at about $110 billion, and the share of high-tech services out of this is estimated at about 33% (about $36 billion), while in 2019 the total export from Israel amounted to about $116 billion and the share of high-tech services is estimated at about 29% (about $33 billion).
The volume of exports from Israel (goods and services – in billions of dollars) and the weight of high-tech services in export
Source: The Export Institute, 2020 – estimate
In addition, under the coronavirus crisis, the year 2020 was characterized by accelerated growth in capital-raising in Israeli high-tech. Thus, in 2020 there were 578 rounds of capital raising by Israeli high-tech companies, with a total investment of about $9.9 billion, which is a 14% increase in the number of transactions compared to 2019, and 27% growth in invested capital. Meanwhile, record capital raising was registered in the public high-tech companies arena (companies that are traded on the Tel Aviv Stock Exchange or on stock exchanges around the world). 121 Israeli public high-tech companies raised about $6.55 billion in 2020, compared to 68 companies raising $1.95 billion in 2019.
Capital raising in Israeli high-tech – scope and number of transactions
Source: IVC Research Center
Among the most notable capital raisings in 2020: Jfrog’s IPO on NASDAQ in New York at a value of about $4 billion (the company is engaged in the development of automation products for software updates, tracking and distribution), a round of sales of eToro shares for $2.5 billion (develops a platform for managing investments in financial assets), and others. According to the publications, a number of well-known Israeli start-ups are preparing for large IPOs on NASDAQ during 2021, with many billions of dollars expected to be raised, continuing the trend of 2020. Among these companies: eToro, Monday.com (develops software for collaborative work management in organizations), ironSource (engaged in the development of a platform for Internet and mobile games) and more.
Despite the rise in capital raising, in the shadow of the coronavirus crisis, the year 2020 ended with a sharp decline in mergers and acquisitions in high-tech. Thus, in 2020, the volume of mergers and acquisitions amounted to approximately $7.8 billion, in 93 transactions, compared with $14.2 billion in 143 transactions in 2019 (excluding transactions over $5 billion). In fact, the extensive capital raisings, including on stock exchanges in Israel and around the world, have been a substitute for the decline in exit transactions. Similar to 2019, in 2020 too around 90% of all mergers and acquisitions were made by American buyers.
Mergers and acquisitions – financial scope (in billions of dollars) and number of transactions
Source: IVC Research Center
The industry data indicate that even in the current crisis, high-tech companies in Israel have proved their advantage in technological innovation, ability to make quick decisions, and high access to funding sources, trends that have led to continued growth and increased weight of high-tech services in the Israeli economy and exports. Respectively, only about a quarter of businesses in the sector received assistance from the government, while in the economy as a whole over half of businesses received assistance (the increase in activity and results of widescale service fields in the industry and the high accessibility to financing, in the shadow of the crisis, made it unnecessary for many businesses in the sector to receive assistance).
In our opinion, the agreement for normalization of relations with the UAE signed in September 2021 opens up potential investment channels for companies and businessmen from the UAE, and from the Arab world, especially for solutions companies in the fields of cyber, FinTech, AgroTech and others that are sought-after services in the UAE. Collaborations between businesses from Israel and the United Arab Emirates are already taking shape, with Israeli high-tech expected to have a presence in this target country.
Spotlight on the sector of restaurants, cafes and bars
The restaurant, bars and cafes sector is part of the food and beverage services industry. The sector is traditionally considered to be high risk, even during routine times (without economic crisis), mainly due to the constant need for innovation, the existence of changing trends and inclinations, low customer loyalty, high price sensitivity, the lack of knowledge and managerial experience of some business owners, and more. Added to this in recent years are regulatory changes that burden the operating costs of business owners in the industry – regulating and taxing the salaries of waiters (“Tips Law”) and imposing a levy on the employment of foreign workers, allowing tax authorities to retroactively charge restaurants for foreign workers in previous years. Against the background of the trends in the branch, it has been characterized in recent years by a low survival rate of businesses.
Survival rate of businesses during the years of their activity (in %), the economy as a whole as against the food services industry (2005-2019)
Source: The CBS and Dun & Bradstreet processing
The data show that the survival rates of businesses in the hospitality and food services industry are lower than the survival rates in all sectors of the economy. At the end of the first year, about 23% of businesses in the industry close, compared with about 14% in all sectors of the economy. At the end of the second year, close to 50% of businesses in the food services industry close, compared with 29% in all sectors of the economy. After 15 years of operation, about 88% of the businesses in the food services industry have closed, compared with about 72% of businesses in the economy as a whole. That is, businesses in the industry are characterized by high risk and high turnover even in years without economic crises.
The coronavirus crisis, with its three lockdowns, has exacerbated the level of risk in the sector, leading to an increase in the number of closures and a significant decrease in industry revenue as a result of the take-away and deliveries model only, without restaurant seating.
As of the beginning of 2020, before the outbreak of the coronavirus crisis, there were about 14,000 active businesses in the sector in Israel (restaurants, cafes, bars and food stalls) and the aggregate revenue in the industry in 2019 was estimated at about NIS 25 billion.
According to Dun & Bradstreet data, about 4,000 restaurants and food stalls closed in 2020, during the coronavirus crisis (some 28% of the number of businesses in the industry), while industry revenue decreased by about 35% and is estimated in 2020 at only NIS 16 billion.
The sector, which is at high risk, suffers from poor access to funding sources and a lack of satisfactory solutions. Thus, as part of the government’s initial economic assistance measures, no specific solutions were provided for businesses in the restaurant industry, but rather, general solutions for all businesses and employees in the economy. Subsequently, the assistance programs were expanded and from the end of June, a state-guaranteed fund was established to provide loans to businesses at increased risk for which there was no support through the designated fund for small and medium businesses. A state-guaranteed loan fund is designed to help businesses obtain financing with which they will be able to overcome the cash flow difficulty during the crisis. Under the designated route the rate of state guarantee is increased, at the level of 60% of the requested debt, compared to a 15% guarantee in the route for businesses with average risk. And yet, some 35% of credit applications under this route have not yet been approved (as of November 2020). In total, about 2,500 businesses in the industry applied for a loan, of which about 1,600 were approved.
The first months of 2021 look bleak, following the trend of 2020. Under the new lockdown, the industry has returned to a delivery-only format, with no take-away option (unless the government changes the regulations), with no certainty as to when it will return to routine. The level of risk in the sector is expected to remain very high in 2021, with a continued decline in revenues and a high rate of business closures.
Spotlight on the fashion stores sector
The fashion stores sector includes clothing, footwear, designer clothing, children’s fashion, lingerie, and fashion accessories. Even before the coronavirus crisis, in recent years the industry has been characterized by high risk as a result of fierce competition with foreign shopping sites (transactions exempt from VAT and customs) and the increase in purchases made by Israelis abroad as part of “shopping trips” made possible by the open skies reform. Against the background of industry trends, many chains have run into difficulties or closed due to lack of profitability in recent years (some have been acquired by new owners). Thus in 2020 the Razili chains (acquired by the Inter Jeans group), and others ran into difficulties, after the difficulties experienced in 2019 by the Discreet chains (women’s fashion chain that appeals to traditional mature women), the Cassidy women’s fashion chain, the Zebra discount fashion chain (acquired by the discount fashion chain Select), the Michal Negrin chain (which sold fashion items in addition to marketing designer jewelry) and others.
At the beginning of 2020, before the crisis, there were around 9,000 different stores in Israel, about half of them stores that operate within chains, and half of them independent stores (that are not part of a chain). The aggregate revenue in the fashion industry in Israel in 2019 is estimated at NIS 20 billion, of which NIS 15-17 billion derives from sales in physical stores and the rest from online purchases.
The branch suffered from many disruptions to its activity during 2020, especially during the two lockdowns, because based on the mix of products sold in stores, it is not considered an essential industry under government definitions. As a result the industry stores remained closed during the lockdowns, as well as the third lockdown that began at the end of the year. This comes at a time when food chains, pharma chains, and stock stores, which remain open in lockdown, have increased the shelf space of fashion items sold in their stores.
There is a difference between the large chains, most of which operated an e-commerce site even before the crisis, and independent fashion stores, some of which do not have an online trading site and depend on shopper traffic, and are therefore at higher risk. Thus, some of the large fashion chains, mainly located in malls, were able to reach arrangements to reduce the monthly rent during the lockdowns, furloughed many employees (additional operating savings), and increased their activity in the e-commerce arena (most already had proven trading platforms). On the other hand, the independent stores do not enjoy a size advantage vis-à-vis their landlords and were dependent on the goodwill of the property owners, for some of whom rental of the store is their main source of income. Some independent stores were found to have quickly organized online trading platforms, some by means of a Facebook page, but many stores have not succeeded in establishing a proven trading platform in a short period of time.
According to Dun & Bradstreet data, in 2020 about 950 fashion stores closed, an increase of 27% in the number of closures, after some 750 stores closed in 2019. Since the industry has been characterized in recent years by the leakage of activity to online commerce sites, some of the independent fashion stores will have to adapt and develop this platform, otherwise many more stores will leave the industry. In our opinion, the level of risk in the sector in 2021, a year that began with a lockdown that substantially affects the activity of businesses in the industry, is expected to remain high this year as well.
Forecast for 2021
Looking ahead to 2021, despite the start of vaccines for coronavirus in Israel, due to the increase in the morbidity rate, the new year begins with another lockdown, the third, which is expected to continue for several weeks. The new lockdown mainly affects trade (closing malls, markets and some street stores) and service providers (beauty salons, hairdressers, driving lessons, etc.). These branches join the industries that depend on crowds for their regular activities (hotels, tourisms and aviation, the events industry, the leisure culture industry, the restaurant industry), which are expected to continue to suffer from disruption to the point of stagnation in activity in the first months of 2021, until the effectiveness of the vaccine becomes clear. Added to this is the political uncertainty, which includes the lack of an approved budget, the deepening of the government deficit to 77% – 80% of GDP, going to another, fourth election in two years, and the situation in the labor market. Thus some of the challenges that characterized the economy in 2020 are expected to continue to accompany it into the first half of 2021.
The continued deterioration in the economy in the first months of 2021 is expected to affect the opening and closing of businesses. After a 30% decrease in the number of business openings in 2020, in which only about 40,000 businesses were opened, we estimate that the number of business openings in 2021 is expected to remain relatively low. The rate of business openings is expected to be low in the first half of 2021 and to increase starting from the second half of the year. In total, in 2021, we estimate that 40,000-45,000 businesses are expected to open, a number that is about 25% lower than in 2019, before the coronavirus era. The rate of business closures is expected to continue to be high as well, and in 2021 we estimate that 55,000-60,000 businesses are likely to close (a decrease in the number of closures compared to 2020, but still about 25% higher than in 2019). Most of the businesses that are expected to close are small and medium-sized businesses, including new businesses that opened in 2019-2020 and are already at high risk (businesses that have not yet established themselves) as well as businesses that have deferred loan repayments to banks under the outline, and do not have improved business activity to enable renewed repayment of the debt.
In sum, the economy is expected to show a contraction in activity in 2021, for the second year in a row, where the number of business closures is expected to be greater than the number of new business openings, so the number of businesses in the economy in 2021 is expected to decrease by 15-20,000, representing a contraction of 3.5% in the number of businesses.
 Israel’s credit rating as of the end of 2020 – S&P: AA-, Moody’s: 1A, Fitch: + A
 Mature companies in the fields of electronic components, printed circuits, communication equipment. Excluding young companies (start-up companies).
 The VAT exemption is for online purchases of up to $75, and the customs exemption is for online purchases of up to $500.
 The share of high-tech in GDP from high-tech services. Not including industrial high-tech (equipment and products) that are classified as industry.
 The VAT exemption is for online purchases of up to $75 and the customs exemption is for online purchases of up to $500.
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