This document provides a summary of Israel's economic performance in the first quarter of 2011. It includes statistics on key economic indicators such as GDP growth, exports, unemployment, inflation, debt levels, and trade balances. Israel experienced strong GDP growth of 7.7% in the first quarter compared to the previous year. Exports and investment recovered sharply after declining in 2009 during the global economic crisis. Unemployment decreased while participation rates increased. Israel's economic growth outpaced averages for advanced economies and it demonstrated stability compared to other countries during the crisis.

1. STATE OF ISRAEL MINISTRY OF FINANCE INTERNATIONAL AFFAIRS DEPARTMENT ECONOMIC HIGHLIGHTS March 2011, 1 st Quarter 2011 Click to start

2. Contents Economic Figures Balances International Comparisons Israel and the OECD International Treaties Relevant Sites Contact Us Note: You can return to the beginning of each chapter by clicking the emblem of Israel on the top of each slide.

3. Economic Figures GDP and Business GDP Major GDP Components Growth: Israel compared to the World Exports of Goods and Services Foreign Investments Unemployment & Participation Rates Inflation Rate Growth of Main GDP Components 2008 Main Economic Indicators Main Trading Partners Inflation Rate Worldwide BACK TO CONTENTS

4. Main Economic Indicators *Current Prices, using a public exchange rate of 1$ = 3 . 56 NIS ** Estimated Source: Ministry of Finance, IMF CONTINUE 2010 Q4 2010 Q3 2010 Q2 2010 Q1 2010 2009 Criteria 52.9 52.0 51.4 50.7 207.0 197.9 GDP (current prices in $B)* 7.7% 4.6 % 5.4 % 5.1 % 4.6% 0.8% Real GDP Growth Rate (%) -- -- -- -- 29 ,404$** 28,581$ GDP per Capita (PPP adjusted)* 5.5% 2.6% 3.6% 3.3% 4.1% -1.1% GDP per Capita Growth Rate (%, 2005 prices) 23.0 (43.5%) 22.5 (43.2%) 22.3 (43.4%) 21.4 (42.3%) 88.94 (43%) 78.2 (39.5%) Exports (Goods & Services) $B* ( As Percentage of GDP ) 21.2 (40.1%) 20.6 (39.7%) 20.6 (40.2%) 20.2 (39.9%) 83.1 (40.1%) 73.8 (37.3%) Imports (Goods & Services) $B* ( As Percentage of GDP ) 6.6% 6.6% 6.5% 6.9% 6.6% 7.6% Unemployment Rate (%)

5. Main Economic Indicators Source: Ministry of Finance CONTINUE 2010 2009 2008 2007 Criteria 76.5% 79. 3 % 77. 1 % 7 7.8 % Total Gross Debt (% of GDP) 42.7% 43.0% 43.0% 43.6% Government Expenditure (Percentage of GDP) 3.1% 3.6% 0.8% 2.9% Current Account Surplus (% of GDP) 2.7% 3.3% 4.6% 0.5% Inflation Rate (CPI, yearly average)

6. Main Economic Indicators Source: Ministry of Finance CONTINUE All 3 rating firms have reaffirmed Israel’s rating, without any downgrade, during the global economic crisis in 2009. Overseas Bonds Forecast Domestic Bonds Term Rating Firm Rating Rating A1 Stable A1 Long Moody's P1 - Short A Stable AA- Long Standard & Poor's A-1 A-1+ Short A Stable A+ Long Fitch F1 - Short Aa3/AA- A1/A+ A2/A A3/A- Baa1/BBB+ Baa2/BBB Baa3/BBB-

7. GDP and Business GDP Annual rate of change (%), in Constant Prices In 2010, Israel has recovered from the global In the 4 th quarter of 2010, Israel economic crisis, and is back to previous years’ experienced exceptional growth rates growth rates Source: Ministry of Finance. CONTINUE

8. GDP Growth Israel compared to Advanced Economies* (Annual rate of change (%), in constant prices) Source: Ministry of Finance Since 2004, Israel’s growth rate has exceeded the average growth rate of advanced economies. CONTINUE In 2009, as most of the world experienced a decline in GDP, Israel experienced a 0.8% growth in it’s GDP

9. Major GDP Components (Annual rate of change (%), in constant prices) Source: Ministry of Finance CONTINUE In 2010, Investment in Fixed Assets and Export of Goods and Services recovered sharply, after they were contracted severely in 2009 due to the economic crisis. Global Economic Crisis

10. Exports of Goods and Services ( $B )* Source: Ministry of Finance CONTINUE * In Current Prices Global Economic Crisis

11. Israel’s Main Trading Partners (US$ Billions) Source: Central Bureau of Statistics Exports CONTINUE * Since July 1997 the data on trade with Hong-Kong is added to the data on China Imports 2008 2009 2008 2009

12. Israel’s Main Trading Partners (US$ Billions) Source: Central Bureau of Statistics CONTINUE Imports Exports

13. Net Foreign Investments in Israel (In $ Billion) * 2006 is exceptional due to a large acquisition by Teva Pharmaceutical Industries Ltd Source: Ministry of Finance CONTINUE Global Economic Crisis

14. Unemployment and Participation (As % of Total Labor Force) Source: Ministry of Finance CONTINUE As Israel grows out of the global recession, since the 2 nd quarter of 2009 unemployment is decreasing , hand in hand with an increase in participation rate since the 1 st quarter of 2010.

15. Inflation Rate (Rate of Change in CPI, yearly average) Source: Central Bureau of Statistics, Ministry of Finance CONTINUE

16. Inflation Rate Worldwide (Annual rate of change in CPI) Sources: Ministry of Finance, IMF CONTINUE The Israeli economy demonstrated a high level of stability compared to other countries throughout the global economic crisis

17. Growth of Main GDP Components for Previous Year Source: Ministry of Finance NEXT CHAPTER: BALANCES BACK TO CONTENTS 2010 Criteria + 4.6% Real GDP + 5.4% Business GDP + 13.8% Exports + 1.4% Private Consumption + 2.2% Public Consumption + 12.4 % Investment in Fixed Assets

18. Balances Budget Deficit – Target and Execution Gross Public Debt BACK TO CONTENTS Budget Deficit and General Government Expenditure Gross Tax Burden Current Account and Net Foreign Debt

19. Gross Public Debt (as percentage of GDP) Source: Ministry of Finance Since 2003, gross public debt has been on a consistent downward trend , only interrupted by the extraordinary circumstances surrounding the 2009 global economic crisis CONTINUE Global Economic Crisis

20. Budget Deficit – Target and Execution (in NIS million, Current prices) Source: Ministry of Finance CONTINUE For the first time in its history, Israel enacted a biennial budget for the years 2009-2010 In both years, Israel came in under budget target. Quarterly Budget Execution Yearly Budget Execution Yearly Budget Target

21. Budget Deficit and General Government Expenditure Source: Ministry of Finance Budget Deficit (% of GDP) General Government Expenditure (% of GDP) CONTINUE

22. Current Account Balance and Net Foreign Debt Source: Ministry of Finance. Since 2003, the current account balance is positive, and is accompanied by a decrease of net foreign debt Current Account Surplus (% of GDP) Net Foreign Surplus* (% of GDP) CONTINUE *Current Prices, using a public exchange rate of 1$ = 3.56 NIS

23. Gross Tax Burden (as % of GDP) Source: Ministry of Finance, OECD OECD countries average: 34.8% (2008 average) NEXT CHAPTER: INTERNATIONAL COMPARISONS BACK TO CONTENTS

24. International Comparisons NASDAQ and Tel-Aviv 100 (monthly average) WEF Global Competitive Index Central Bank Interest Rates: Israel and U.S.A BACK TO CONTENTS IMD World Competitiveness Yearbook

25. Source: International Institute for Management and Development (IMD), World Competitiveness Yearbook 20 10 IMD World Competitiveness Yearbook 2010 The Institute for Management Development ranked Israel 17 th out of 58 countries for 2010 (Israel was ranked 24 th in 2009) CONTINUE

26. Source: International Institute for Management and Development (IMD), World Competitiveness Yearbook 20 10 IMD World Competitiveness Yearbook 2010 CONTINUE Resilience of the economy Central bank policy Entrepreneurship Financial skills

27. Source: International Institute for Management and Development (IMD), World Competitiveness Yearbook 20 10 IMD World Competitiveness Yearbook 2010 CONTINUE Venture capital Total expenditure on R&D Skilled labor Scientific research

28. Source: World Economic Forum, Global Competitiveness Index, 2010-2011 The World Economic Forum ranked Israel 24 th out of 139 countries for 2010-2011 CONTINUE WEF Global Competitiveness Index 2010-2011

29. Source: World Economic Forum, Global Competitiveness Index, 2010-2011 CONTINUE WEF Global Competitiveness Index 2010-2011 Quality of scientific research institutions Utility patents per million population Availability of latest technologies Strength of investor protection

30. Source: World Economic Forum, Global Competitiveness Index, 2010-2011 CONTINUE WEF Global Competitiveness Index 2009-2010 Legal rights index Capacity for innovation Firm-level technology absorption Nature of competitive advantage

31. Central Bank Interest Rates: Israel and U.S.A Source: Bank of Israel (BOI), Federal Reserve Bank of Israel Rate (BOI) U.S. Federal Funds Rate CONTINUE The Bank of Israel was the first in the western world to raise interest since the outburst of the economic crisis. The rate was raised gradually from 0.5% to 3.0%

32. NASDAQ & Tel Aviv 100 (monthly average) Source: Ministry of Finance Tel Aviv 100 corresponds with the NASDAQ to current events NEXT CHAPTER: ISRAEL AND THE OECD BACK TO CONTENTS

33. Israel and the OECD Unemployment GDP per Capita Real GDP Growth Expenditure on R&D Israel was invited as a full member in the OECD on May 10 th , 2010, and officially joined in September 10 th , 2010. BACK TO CONTENTS

34. Source: OECD CONTINUE Israel is ranked 1 st of all OECD countries by expenditure on R&D (research & development) as percentage of GDP (4.864 %), demonstrating innovation , development and creativity . Expenditure on R&D (as percentage of GDP, 2008)

35. Real GDP Growth (3-year average at end of period) Source: OECD CONTINUE Israel’s 3-year average growth rate is higher then most OECD members. For Israel’s year-on-year graph, see slide no.7

36. GDP per capita (current prices in US$, current PPP’s, 2008) Source: OECD * Estimated CONTINUE For Israel’s adjusted PPP GDP Per Capita, see slide no.4 Although no final data of the years 2009-2010 exist, it is reasonable to assume a diminishing gap between Israel and the OECD average

37. Unemployment Rate ( Average 2006-2008 or latest available period ) Source: Ministry of Finance, OECD Israel’s unemployment grew mildly compared with some OECD members during 2009, with the global economic crisis in background. For Israel’s unemployment, see NEXT CHAPTER: INTERNATIONAL TREATIES BACK TO CONTENTS slide no.14

38. International treaties Avoidance of Double Taxation Agreements Bilateral Investment Treaties Cooperation in Industrial R&D Agreements International Organization Memberships Israel’s Free Trade Agreements BACK TO CONTENTS

39. Israel’s Free Trade Agreements QIZ Agreements Egypt (2004) Jordan (1998) 1985 1992 1997 1997 1999 2000 2007 USA EFTA Turkey Canada Mexico European Union (Association Agreement) MERCOSUR (Argentina not yet in force) CONTINUE Source: Ministry of Finance

40. Avoidance of Double Taxation Agreements CONTINUE Source: Ministry of Finance Austria Belarus Belgium Brazil Bulgaria Canada China Czech Republic Croatia Denmark Estonia Ethiopia Finland France Germany Greece Hungary India Ireland Italy Jamaica Japan Latvia Lithuania

41. Avoidance of Double Taxation Agreements CONTINUE Source: Ministry of Finance Luxembourg Mexico Moldova Norway Philippines Portugal Poland Romania Russia Singapore Slovakia Slovenia South Africa South Korea Spain Sweden Switzerland Thailand Netherlands Turkey Ukraine United kingdom Uzbekistan U.S.A Taiwan Vietnam

42. Cooperation in Industrial R&D Agreements CONTINUE Source: Ministry of Finance Austria Belgium Canada China Finland France Germany Hong Kong Sweden United kingdom U.S.A India Ireland Italy Korea Netherlands Portugal Singapore Spain Victoria (Australia) Czech Republic

43. Bilateral Investment Treaties CONTINUE Source: Ministry of Finance * See comments in the Bilateral Investments Treaties page in our website Albania Argentina Armenia Azerbaijan Belarus Bulgaria China Croatia* India Kazakhstan Latvia Lithuania Germany Cyprus Czech Republic El Salvador Estonia Georgia Guatemala Ethiopia Hungary* Macedonia* Korea Moldova

44. Bilateral Investment Treaties CONTINUE Source: Ministry of Finance South Africa* Thailand Turkey Turkmenistan Ukraine* Uzbekistan Slovakia Slovenia* Serbia Mongolia Poland Romania* Montenegro Peru* Vietnam* * See comments in the Bilateral Investments Treaties page in our website

45. 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 Source: Ministry of Finance

46. Relevant Sites BACK TO CONTENTS Ministry of Finance Bank of Israel Central Bureau of Statistics Israeli Government Portal Israel Securities Authority Ministry of Industry, Trade and Labor CONTACT US

47. WE WELCOME YOUR FEEDBACK Mr. Roni Hershkovitz Director Overseas Economic Information International Affairs Department Ministry of Finance Jerusalem Israel Mr. Assaf Luxembourg Overseas Economic Information International Affairs Department Ministry of Finance Jerusalem Israel START OVER Follow us on Twitter Subscribe to our RSS Feeds Subscribe to our Newsletters Write us an Email Visit our Website Like us on Facebook