Economic Highlights Presentation, Q2 2011

STATE OF ISRAEL
MINISTRY OF FINANCE
International Affairs Department

ECONOMIC HIGHLIGHTS
July 2011, 2nd Quarter 2011
Click to start

Contents
Economic Figures

Balances

International Comparisons

Israel and the OECD
Note:
You can return to the beginning
International Agreements of each chapter by clicking the
emblem of Israel on the top of
each slide.

Relevant Sites

Contact Us

Economic Figures
Main Economic Indicators

GDP and Business GDP

Growth: Israel compared to the World

Major GDP Components

Exports of Goods and Services

Main Trading Partners

Foreign Investments

Unemployment & Participation Rates

Inflation Rate

Inflation Rate Worldwide

Growth of Main GDP Components 2008
BACK TO CONTENTS


2010 2010 2010 2011
Criteria 2009 2010
Q2 Q3 Q4 Q1

GDP
203.6 213.1 52.9 53.5 54.5 55.1
(current prices in $B)*

Real GDP Growth Rate
0.8% 4.7% 5.5% 4.8% 7.6% 4.7%
(%)
GDP per Capita
28,581$ 29,531$ -- -- -- --
(PPP adjusted)*
GDP per Capita Growth Rate
-1.1% 2.8% 3.7% 2.8% 5.4% 2.7%
(%, 2005 prices)

Exports (Goods & Services) $B* 80.4 91.3 23.0 23.1 23.7 24.6
(As Percentage of GDP) (39.5%) (42.9%) (43.5%) (43.1%) (43.5%) (44.6%)

Imports (Goods & Services) $B* 76.0 85.6 21.3 21.3 21.1 22.9
(As Percentage of GDP) (37.3%) (40.1%) (40.2%) (39.7%) (40.5%) (41.5%)

Unemployment Rate
7.6% 6.6% 6.5% 6.5% 6.5% 6.0%
(%)

*Current Prices, using a public exchange rate of 1$ = 3.46 NIS
CONTINUE
** Estimated

Source: Ministry of Finance, IMF


Criteria 2007 2008 2009 2010

Total Gross Debt
77.8% 77.1% 79.3% 76.4%
(% of GDP)

Government Expenditure
43.6% 43.0% 43.0% 42.7%
(Percentage of GDP)

Current Account Surplus
2.9% 0.8% 3.6% 2.9%
(% of GDP)

Inflation Rate
0.5% 4.6% 3.3% 2.7%
(CPI, yearly average)

CONTINUE

Source: Ministry of Finance

Domestic Bonds Overseas Bonds
Rating Firm Term Forecast
Rating Rating
Long A1 A1
Moody's Stable
Short - P1

Long AA- A
Standard & Poor's Stable
Short A-1+ A-1

Long A+ A
Fitch Stable
Short - F1

All 3 rating firms have reaffirmed Israel’s rating, without any downgrade,
Since the global economic crisis in 2009.

CONTINUE


GDP and Business GDP
Annual rate of change, constant prices

In 2010, Israel has recovered from the global In the 4th quarter of 2010, Israel
10% economic crisis, and is back to previous years’ experienced exceptional growth rates
8.7%
9% growth rates
8% 7.0% 7.6%

7% 6.7%
6.0%
5.7% 5.8%
5.4%
6% 5.4% 5.5% 5.1%
4.8% 4.7%
4.7% 4.6%
5% 4.2%

4%

3%

2%
0.8%
1% 0.2%

0%
2006 2007 2008 2009 2010 2010 Q2 2010 Q3 2010 Q4 2011 Q1
-1%

GDP Business GDP
-2%

CONTINUE

Source: Ministry of Finance.

GDP Growth
Israel compared to advanced economies*
(annual rate of change, constant prices)

5.7%
5.6% 5.4%
5.0% 4.9%
4.7%
4.6%
4.2%

3.6%
3.1% 3.0%
2.7% 2.7%
2.7%
2.6%

1.6%

0.8%

0.5% 0.2%

-0.5% 2004 2005 2006 2007 2008 2009 2010

Since 2004, Israel’s growth rate has exceeded the average growth rate
-1.5% of advanced economies.

In 2009, as most of the world experienced a decline in GDP,
-2.5%
Israel experienced a 0.8% growth in it’s GDP

-3.5%
Advanced Economies Israel Growth
-3.4%

CONTINUE

Source: Ministry of Finance, IMF

Major GDP Components
Annual rate of change, in constant prices

20.0%

Global Economic Crisis
14.6%
15.0% 13.6% 13.6%
12.6%

10.0% 9.3%

5.9% 6.3% 5.9%
5.0% 4.3% 4.1%
3.1% 3.1% 3.0%
2.1% 2.2% 2.2%
1.4% 1.4%

0.0%
2006 2007 2008 2009 2010

-5.0%
-5.8%
In 2010, Investment in Fixed Assets and Export of Goods and
-10.0%
Services recovered sharply, after they were contracted severely in
2009 due to the economic crisis.
-12.5%
-15.0%

Private Consumption Government Consumption Investment in Fixed Assets Exports of Goods and Services

CONTINUE


Exports of Goods and Services
US $ Billions, current prices

Global
90.0
Economic
80.0 Crisis
Services

70.0 24.1
Goods 24.7

60.0 21.1
22.0
19.3
50.0 17.4
16.0
40.0
13.4

30.0 57.2
45.9 55.7
50.3

20.0 43.3
36.7 39.8
30.2
10.0

0.0
2003 2004 2005 2006 2007 2008 2009 2010

CONTINUE


Israel’s Main Trading Partners
2010, US $ Billions

7
20
Imports
6
18 Exports

16 5

14
4

12 6.7
3 6.1

10
18.5 2
3.7
8 3.2
2.4 2.2
1 2.1
1.8 1.8 1.8
6

0
4

6.0
2
3.1 2.9
2.3 1.8 1.7 1.3 1.3 1.3
0

CONTINUE
*Since July 1997 the data on trade with Hong-Kong is added to the data on China

Source: Central Bureau of Statistics

Israel’s Main Trading Partners
US $ Billions

30
29.7

Europe 25 26.8 26.4

Asia 22.9
20
North America
15
13.7 13.3
10 11.9
10.0
Exports 8.3 8.7
7.3
5 6.3
30
0
25
21.2
19.9 19.6
20 21.9
17.6 Imports
19.2 18.9
15
15.4
13.8
10 12.2
9.8 9.5
5

0

CONTINUE

Source: Central Bureau of Statistics

Net Foreign Investments in Israel
US $ Billion

25

Direct Investments
Total Investments
20 19.4

17.6

15.3 Global Economic
15 14.4 Crisis

10.9 10.7 10.7

10 9.5
8.8
8.3

4.9 5.2
5 4.3 4.3 4.4
3.3
2.4
1.6

0
2002 2003 2004 2005 2006* 2007 2008 2009 2010

CONTINUE
* 2006 is exceptional due to a large acquisition by Teva Pharmaceutical Industries Ltd

Unemployment and Participation
As % of total labor force

8.0% 7.9% 58.5%

7.6%
58.0%
57.7%
7.5% 57.7%

57.4% 57.5%

7.0%
7.2% 6.9%
56.8% 57.0%
56.8% 57.1%
56.7% 6.6%
56.8% 6.5%
6.5% 56.5%
6.5%

56.0%
6.0%
Since the 2nd quarter of 2009 unemployment is decreasing, 6.0%
55.5%
hand in hand with an increase in participation rate since the 1st quarter of 2010.
5.5%
Unemployment Rate 55.0%

Participation in the Labor Force
5.0% 54.5%
Q2 Q3 Q4 2010 Q1 Q2 Q3 Q4 2011 Q1

CONTINUE


Inflation Rate
Rate of change in CPI, yearly average, 2008=100

5%
4.6%

4%

3.3%

3%
2.7%

2.1%
2%

1.4%

1%
0.7%
0.5%

0%
2003 2004 2005 2006 2007 2008 2009 2010

-0.4%

-1%

CONTINUE

Source: Central Bureau of Statistics, Ministry of Finance

Inflation Rate
Rate of change in CPI, 12 months average, 2008=100

104

103.1
103
102.5
102.3
102.0
102 101.8

101.3 101.4
101.0
101 100.8

100.3

100 99.8
99.5

99

98

97
May 2010 Jun 2010 Jul 2010 Aug 2010 Sep 2010 Oct 2010 Nov 2010 Dec 2010 Jan 2011 Feb 2011 Mar 2011 Apr 2011

CONTINUE

Source: Central Bureau of Statistics, Ministry of Finance

Inflation Rate Worldwide
Annual rate of change in CPI

The Israeli economy demonstrated a high level of stability
3.3%
compared to other countries throughout the global economic crisis
3% 2.7%
2.4% 2.3%
2.2%

1.6% 1.6% 1.7%
1.4%
1.2%

1% 0.7%

0.2%
-0.7% -0.5% -0.3% 0.0%
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-1%
-0.9%

-1.4%
-1.7% -1.6%

2009 (left column)

-3% 2010 (right column)

CONTINUE

Sources: Ministry of Finance, IMF

Growth of Main GDP Components
for Previous Quarter

Criteria Q1 2011

Real GDP + 4.7%

Business GDP + 5.8%

Exports + 16.0%

Private Consumption + 6.8%

Public Consumption + -5.7%

Investment in Fixed Assets + 23.7 %

NEXT CHAPTER: BALANCES BACK TO CONTENTS


Balances

Gross Public Debt

Budget Deficit – Target and Execution

Budget Deficit and General Government Expenditure

Current Account and Net Foreign Debt

Gross Tax Burden

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Gross Public Debt
As % of GDP

Since 2003, gross public debt has been on a consistent downward trend, only interrupted by the
105% extraordinary circumstances surrounding the 2009 global economic crisis

99.1%

100% 97.4%

93.8%
95%

90% Global
Economic
84.3%
85% Crisis

79.3%
80% 77.8%
77.1%

76.4%

75%
2003 2004 2005 2006 2007 2008 2009 2010

CONTINUE


Budget Deficit – Target and Execution
in NIS million, current prices

2009 Q2 2009 Q3 2009 Q4 2009 Total 2010 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Total 2011 Q1
-500

-1980
-3433 -3579
-5500 -4,452
-6523

-10500

-13,501
-15500
-15396
-16,061

-20500 For the first time in its history,
Israel enacted a biennial budget
-25500
for the years 2009-2010

-30500 In both years, Israel came in -28931

under budget target.
-35500

Quarterly Budget Execution -39,286
-40500
Yearly Budget Execution
Yearly Budget Target -42924
-45500 -44,355

CONTINUE


Budget Deficit and
General Government Expenditure

Budget Deficit
6%
(% of GDP) 5.2%
5%

4% 3.7%

General Government Expenditure 3%
(% of GDP) 2.2%
2% 1.8%

46% 0.9%
1%
45.3%
0.0%
45% 0%
44.7%
2 5 2 6 2 7 2 8 2 9 2 1

44%
43.6%

43.0% 43.0%
43% 42.7%

42%

41%
2 5 2 6 2 7 2 8 2 9 2 1 CONTINUE


Current Account Balance and
Net Foreign Debt

Since 2003, the current account balance is positive, and is accompanied by a decrease of net foreign debt
30%

24.7% 24.9%
25%
21.0% 21.1%
20%

Current Account Surplus 13.7%
15%
(% of GDP)
10.2%
10%

4.2%
5%
5.1% 1.6%
5.0%
0%
2003 2004 2005 2006 2007 2008 2009 2010
4.0%
3.6%
3.1%
2.9% 2.90%
3.0%
Net Foreign Surplus*
2.3%

2.0%
(% of GDP)
1.2%
1.0% 0.8%

0.0%
2003 2004 2005 2006 2007 2008 2009 2010
CONTINUE
*Current Prices, using a public exchange rate of 1$ = 3.46 NIS

Source: Ministry of Finance.

Gross Tax Burden
as % of GDP

38%

36.3%
35.9%
36% 35.4% 35.5%

33.8%
34%

32.5%
32% 31.4%

30%

28%
2 4 2 5 2 6 2 7 2 8 2 9 2 1

OECD countries average: 34.8% (2008 average)

NEXT CHAPTER: INTERNATIONAL COMPARISONS BACK TO CONTENTS

Source: Ministry of Finance, OECD

International Comparisons

IMD World Competitiveness Yearbook

WEF Global Competitive Index

Central Bank Interest Rates: Israel and U.S.A

NASDAQ and Tel-Aviv 100 (monthly average)

BACK TO CONTENTS

IMD World Competitiveness
Yearbook 2011

The Institute for Management
Development ranked Israel

17th
out of 59 countries for 2011

(Israel was also ranked 17th in 2010)
CONTINUE

Source: International Institute for Management and Development (IMD), World Competitiveness Yearbook 2011

Yearbook 2011
Information Technology Skills Central Bank policy

Flexible and adaptability Entrepreneurship

CONTINUE


Yearbook 2011
Total expenditure on R&D (as % of GDP) Scientific Research

Venture Capital Innovative capacity

CONTINUE


WEF Global Competitiveness
Index 2010-2011

The World Economic Forum
ranked Israel

24th
out of 139 countries
for 2010-2011
CONTINUE

Source: World Economic Forum, Global Competitiveness Index, 2010-2011

Index 2010-2011
Quality of scientific research institutions Utility patents per million population

Strength of investor protection Availability of latest technologies

CONTINUE


Index 2009-2010
Legal rights index Capacity for innovation

Nature of competitive advantage Firm-level technology absorption

CONTINUE


Central Bank Interest Rates:
Israel and U.S.A
3.5%
3.25%
The Bank of Israel was the first in the western world to
raise interest since the outburst of the economic crisis.
3.0% 3.00%

The rate was raised gradually from 0.5% to 3.25%
2.5% 2.50%

2.0% 2.00%

1.75%

1.5% 1.50%

1.25%

1.0% 1.00%

0.75% Bank of Israel Rate (BOI)
0.5% 0.50%
U.S. Federal Funds Rate (FED) = 0%

0.0%

CONTINUE

Source: Bank of Israel (BOI), Federal Reserve

NASDAQ & Tel Aviv 100
monthly average

4,000.00 1300.00

Tel Aviv 100 corresponds with the 1200.00
NASDAQ to current events
3,500.00
1100.00

1000.00
3,000.00

900.00

2,500.00 800.00

700.00

2,000.00
600.00

500.00
1,500.00 Nasdaq (left scale)

Tel Aviv 100 (right scale) 400.00

1,000.00 300.00
10
11
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10

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3
4
5
6
7
8
9

2
3
4
5
6
7
8
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2
3
4
5
6
7
8
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2
3
4
5
6
7
8
9

2
3
4
5
6
07

08

09

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NEXT CHAPTER: ISRAEL AND THE OECD BACK TO CONTENTS


Israel and the OECD

Israel was invited as a full member in the OECD on May 10th, 2010, and officially
joined in September 10th, 2010.

Expenditure on R&D

Real GDP Growth

GDP per Capita

Unemployment

BACK TO CONTENTS

Expenditure on R&D
As % of GDP, 2008, or latest available year

5%
4.27%
Israel is ranked 1st of all OECD countries by expenditure on R&D (research & development)
4%
as a percentage of GDP (4.27 %), demonstrating innovation, development and creativity.
4%

3%

3% 2.28%

2%

2%

1%

1%

0%

CONTINUE
Source: OECD

Real GDP Growth
3-year average at end of period

12%
Israel’s 3-year average growth rate is higher then most OECD members.

10% For Israel’s year-on-year graph, see slide no.7

8%

6%
4.83%

4%

2.13%
2%

0%

CONTINUE
Source: OECD

GDP per capita
Current prices and PPP’s, 2009
90,000

80,000 Although no comparable data for 2010 exists, it is reasonable to assume a diminishing
gap between Israel and the OECD average
70,000
For Israel’s adjusted PPP GDP Per Capita, see slide no.4
60,000

50,000

40,000
33,082
30,000 27,661

20,000

10,000

0

CONTINUE
Source: OECD

Unemployment Rate
Average 2006-2008, or latest available period
12

Israel’s unemployment rate is in an ongoing downtrend, reaching an historic low
10 level of 5.8% in April 2011. During the last global economic crisis, Israel
experienced a relatively mild increase in unemployment rates.

8 For Israel’s unemployment, see slide no.14 7.27

6.00
6

4

2

0

NEXT CHAPTER: INTERNATIONAL AGREEMENTS BACK TO CONTENTS
Source: Ministry of Finance, OECD

International Agreements

Israel’s Free Trade Agreements

Avoidance of Double Taxation Agreements

Cooperation in Industrial R&D Agreements

Bilateral Investment Treaties

International Organization Memberships

BACK TO CONTENTS

Israel’s Free Trade Agreements

1985 USA

1992 EFTA QIZ Agreements
1997 Turkey
Egypt (2004)

1997 Canada
Jordan (1998)

1999 Mexico

2000 European Union (Association Agreement)

2007 MERCOSUR (Argentina not yet in force)

CONTINUE


Avoidance of Double
Taxation Agreements

Austria Croatia Hungary

Belarus Denmark India

Belgium Estonia Ireland

Brazil Ethiopia Italy

Bulgaria Finland Jamaica

Canada France Japan

China Germany Latvia

Czech Republic Greece Lithuania

CONTINUE


Avoidance of Double
Taxation Agreements

Luxembourg Russia Taiwan

Mexico Singapore Thailand

Moldova Slovakia Vietnam

Norway Slovenia Turkey

Netherlands South Africa Ukraine

Philippines South Korea United kingdom

Portugal Spain Uzbekistan

Poland Sweden U.S.A

Romania Switzerland CONTINUE


Cooperation in Industrial R&D
Agreements

Austria India Sweden

Belgium Ireland United kingdom

Canada Italy U.S.A

China Korea Victoria (Australia)

Finland Netherlands Czech Republic

France Portugal

Germany Singapore

Hong Kong Spain

CONTINUE



Albania Cyprus Hungary*

Argentina Czech Republic India

Armenia El Salvador Kazakhstan

Azerbaijan Estonia Korea

Belarus Ethiopia Latvia

Bulgaria Georgia Lithuania

China Germany Macedonia*

Croatia* Guatemala Moldova

CONTINUE
* See comments in the Bilateral Investments Treaties page in our website


Mongolia South Africa*

Montenegro Thailand

Peru* Turkey

Poland Turkmenistan

Romania* Ukraine*

Serbia Uzbekistan

Slovakia Vietnam*

Slovenia*

CONTINUE
* See comments in the Bilateral Investments Treaties page in our website

Main International Economic
Organizations Membership:

Israel is a member in leading international economic organizations:

• United Nations Organizations

• United Nations Agencies

• World Bank Group

• International Monetary Fund

• OECD

• Regional Organizations

• Inter-Governmental Organizations

NEXT CHAPTER: RELEVANT SITES BACK TO CONTENTS


Relevant Sites

Ministry of Finance

Bank of Israel

Central Bureau of Statistics

Israeli Government Portal

Israel Securities Authority

Ministry of Industry, Trade and Labor

Ministry of Foreign Affairs

CONTACT US BACK TO CONTENTS

WE WELCOME YOUR FEEDBACK
Mr. Roni Hershkovitz
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Overseas Economic Information
International Affairs Department Follow us on Linkedin
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Jerusalem
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Economic Highlights Presentation, Q2 2011