1 The Israeli Economy: High-tech and the Macro-Economic Outlook September 2012 Prepared by Gil Michael Bufman, Ph.D. Bank Leumi, Chief Economist.

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The Israeli Economy:High-tech and the Macro-Economic Outlook

September 2012

Prepared byGil Michael Bufman, Ph.D.

Bank Leumi, Chief Economist

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The Israeli Economy -- A High-Tech Little Giant:1. Resilient macroeconomic fundamentals.2. Substantial R&D investment with a sizeable

spillover from defense R&D to civilian applications.

3. A high degree of international cooperation.4. Highly skilled and motivated professionals.5. A favorable composition of target markets.6. An improvement in the degree of

competitiveness.

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Israel will continue to outpace OECD growth, albeit a drop from the growth rates of 2010-2011

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FDI inflows have seen a rebound, but foreign party’s portfolio outflows have increased

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The depreciation of the shekel will be beneficial for exports in 2013

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Israel is a world leader in R&D; Aside from civilian R&D, there is a defense R&D that tends to spillover into civilian applications

In 2009, 62% of Israel’s civilian R&D spending (US$4.7bn) took place in Israeli foreign owned companies.

In addition, 92% of exported R&D services (US$3.4bn) originated from these companies.

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In “good periods”, Israel’s high-tech electronic goods exports tend to surge upwards more substantially than high-tech activity in the US

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Exports of high-tech services have grown substantially and are now equivalent in volume to the export of high-tech goods

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The data on the ICT sector gives a good indication of areas of activity and export destinations countries

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The Israeli Economy:High-tech and the Macro-Economic Outlook

September 2012

Prepared byGil Michael Bufman, Ph.D.

Bank Leumi, Chief Economist