ECONOMIC HIGHLIGHTS ECONOMIC HIGHLIGHTS 2 2 nd nd QUARTER 2008 QUARTER 2008 STATE OF ISRAEL STATE OF ISRAEL MINISTRY OF FINANCE MINISTRY OF FINANCE INTERNATIONAL AFFAIRS DEPARTMENT INTERNATIONAL AFFAIRS DEPARTMENT July 2008 July 2008 International Affairs Department International Affairs Department
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ECONOMIC HIGHLIGHTS 2 nd QUARTER 2008 STATE OF ISRAEL MINISTRY OF FINANCE INTERNATIONAL AFFAIRS DEPARTMENT July 2008 International Affairs Department International.
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The resources available to Israel in 2007 - from local production The resources available to Israel in 2007 - from local production and imports – are 38 times greater than they were in 1950and imports – are 38 times greater than they were in 1950..
*(Constant Prices of 2005)
Source: Central Bureau of Statistics 6
Public Debt (% of GDP) 1950 - 2007
Source: Central Bureau of Statistics
0
50
100
150
200
250
300
Since 1984, The Public Debt has shown a downward trendSince 1984, The Public Debt has shown a downward trend
7
Tourist Arrivals and Departures of Israelis abroad (1950 – 2007)
In 1948, 208 students received an academic degree in Israel. In 1948, 208 students received an academic degree in Israel. In 2006 – almost 53,000In 2006 – almost 53,000..
Source: Central Bureau of Statistics9
Investment in total knowledge: Higher Education, Software and R&D (% of GDP, 2002)
0.6
1.1
1.1
1.0
2.1
2.1
2.3
1.9
2.2
1.5
2.5
1.6
2.0
3.1
2.5
2.5
2.5
3.4
2.7
4.1
4.8
0.7
0.8
0.8
0.9
0.8
1.1
0.7
1.4
0.7
1.4
1.1
1.3
1.3
1.6
1.4
1.5
1.8
1.8
0.8
0.6
1.0
0.9
0.7
0.6
0.7
0.9
0.8
0.7
1.1
1.7
0.7
1.4
1.3
1.9
1.1
2.2
0.9
1.2
1.9
2.3
2.3
2.7
3.4
3.7
3.7
3.7
3.8
3.8
3.9
4.1
4.8
5.1
5.2
5.4
5.8
6.0
6.7
6.8
7.11.1
0 1 2 3 4 5 6 7 8
Greece
Italy
Ireland
Spain
Austria
EU (average)
France
Britain
Belgium
Norway
Germany
Australia
Canada
Japan
OECD (average)
Denmark
Korea
Finland
U.S.A
Sweden
Israel
R&D
Software
Higher Education
Israel is the world Israel is the world leader in the leader in the
amount of venture amount of venture capital invested in capital invested in
GDP (current prices in $B)*116123.6131.2142.3161.9
GDP Real Growth Rate (%)2.3%5.2.%5.3%5.2%5.3%
GDP per Capita
(PPP adjusted)***$26,476$28,169$25,762
GDP per Capita Growth Rate
(%, Current prices)0.4%3.4%3.5%3.4%3.4%
Exports (Goods & Services)** $B*
(As Percentage of GDP)
43.6
(37.6%)
52.7
(42.6%)
57.6
(43.9%)
62.9
(44.2%)
71.5
(44.2%)
Imports (Goods & Services)** $B*
(As Percentage of GDP)44.5
(38.4%)52.3
(42.3%)57.6
(43.9%)62.0
(43.6%)73.6
(45.5%)
Unemployment Rate (%)10.7%10.4%9.0%8.4%7.3%
12
Criteria20032004200520062007Total Gross Debt (Percentage of GDP)101.7%99.9%95.9%86.7%80.8%Government Expenditure
(Percentage of GDP)51.2%48.1%46.3%45.6%45.1%
Current Account (% of GDP)1.2%2.4%3.3%6.0%3.2%Inflation Rate ( CPI, end of year)-1.9%1.2%2.4%-0.1%3.4%Credit Rating
( Long-term Foreign Bonds )Moody’s: A1
(Stable)S&P: A
(Positive)Fitch: A(Stable)
About Credit Rating: The government’s credit rating affects banks, companies and financial bodies in the market. The rating creates a “ceiling” which acts as a reference to their bond pricing. Credit rating indicates the macro-economic status of an economy and affects foreign investors’ decisions whether to invest in the market.
Recently Moody’s Ratings have raised Israel’s foreign currency credit rating from ‘A2’ to ‘A1’ and local currency credit rating from ‘A2’ to ‘A1’ (Both: Stable).
Source: Ministry of Finance, Central Bureau of Statistics
Main Economic Indicators and Forecast (con.)
13
Source: Central Bureau of Statistics, Ministry of Finance
8.9
6.1
-0.4
-2.7
-0.6
-2.6
2.3
0.4
5.2
3.4
5.3
3.5
5.2
3.4
5.3
3.4
-5.0
-3.0
-1.0
1.0
3.0
5.0
7.0
9.0
2000 2001 2002 2003 2004 2005 2006 2007
GDP GDP per Capita
GDP and GDP per Capita (Annual rate of change (%), in Constant Prices)
Growth forecasts for 2008 : 4.2%Growth forecasts for 2008 : 4.2%
14
GDP GrowthIsrael compared to Advanced Economies* (Annual rate of change (%), in constant prices)
1.3%
-0.4%
1.6%
-0.6%
2.0%2.3%
3.2%
5.2%
2.5%
5.3%
3.1%
5.2%
2.6%
5.3%
1.7%
4.2%
1.7%
3.5%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
2001 2002 2003 2004 2005 2006 2007 2008 2009
World Growth Israel Growth
* (Weighted average: US - 44%, Euro area - 37%, Japan - 4%, UK - 8%, Asian Newly Industrialized countries - 7%)
Source: Ministry of Finance, Israel.
Since 2003, Israel’s growth rate has exceeded the average Since 2003, Israel’s growth rate has exceeded the average growth rate of advanced economiesgrowth rate of advanced economies
15
1.2
5.0
-6.1
8.1
5.6
-2.6
2.5
18.2
3.93
10.5
4.3 4.5
2.3
5.35.9
6.8
2.6
13.1
8.4
-8
-3
2
7
12
17
2003 2004 2005 2006 2007
Private Consumption Government Consumption
Investment in Fixed Assets Exports of Goods and Services
Major GDP Components(Annual rate of change (%), in constant prices)
Source: Central Bureau of Statistics, Ministry of Finance 16
Source: Central Bureau of Statistics
Exports of Goods and Services ($B)
30.2
13.4
36.7
16
40.1
17.4
43.7
19.3
50.4
21.1
0
10
20
30
40
50
60
70
80
2003 2004 2005 2006 2007
Goods Services
17
Exports of Goods by Region(Excluding diamonds)
Source: Central Bureau of Statistics*Rest of Europe Includes E.F.T.A . Countries (Norway, Switzerland, Liechtenstein and Iceland)
2006 2007
North America
30.5%
Asia15%
European Union34.5%
Rest of Europe*
6.5%
Africa3%
Other11%
Africa3%
Other8%
Asia15.1%
Rest of Europe*6.8%
European Union32.9%
North America37.5%
(USA: 31.2%)
18
)USA: 28%(
Imports of Goods and Services (B$)
33.3
11.2
39.5
12.8
43.8
13.7
47.1
15
55.8
17.9
0
10
20
30
40
50
60
70
80
2003 2004 2005 2006 2007
Goods Services
Source: Central Bureau of Statistics, Ministry of Finance
30% growth in vehicle imports in 200730% growth in vehicle imports in 2007
19
Imports of Goods by Region
(excluding Diamonds)
Source: Central Bureau of Statistics
*Rest of Europe Includes E.F.T.A . Countries (Norway, Switzerland, Liechtenstein and Iceland)
Africa0.7%
Other 16.6%
Asia19%
Rest of Europe*
9.9%
European Union36.9%
North America
16.9%(USA: 13.4)
Rest of Europe*
9.3%
Africa 0.72%
Asia 20.7%
North America
15.9%
European Union 35.5%
Other 17.8%
(USA: 14.9%)
2006
2007
20
6.9
9.7
3.5
1.9
3.5
0.9
2.1
1.6
2.3
1.2
1.8
1.6
1.6
1.2
1.5
1.2
1.7
0.7
1.3
1
0
2
4
6
8
10
12
14
16
18
USAGermany
ChinaThe Netherlands
ItalyUK Turkey
France
JapanBelgium
16.6
5.5
4.4 3.7 3.5 3.4 2.8 2.7 2.4 2.3
5.2
10
3.2
1.7
2.4
0.8
1.8
1.3
1.9
1
1.6
1.4
1.30.8
1.31.2
1.3 1.20.8
0
2
4
6
8
10
12
14
16
0.7
Israel’s Main Trading Partners(US$ Billions, excluding diamonds)
Source: Central Bureau of Statistics
2006
2007
21
EXPORT
IMPORT
15.2
4.9
3.2 3.1 2.9 3.02.1 2.5 2.0 2.0
Foreign Investments (B$)
Source: Ministry of Finance
1.7
4.53.1
9.6
5.1
12.3
3.6 4.1
1.73.2 3.9
5.3
2
9.2
4.8
9.2
14.7
25.8
10.3
13.6
0
5
10
15
20
25
30
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Direct Investments
Total Investments
22
In July 2008, the Norwegian pension fund “Global” decided In July 2008, the Norwegian pension fund “Global” decided to invest over half a billion euros in Israel.to invest over half a billion euros in Israel.
Unemployment and Participation (As % of Total Labor Force)
Source: Central Bureau of Statistics
9.2%
8.9% 8.9% 8.9%8.8% 8.8%
6.30%
7.5%
8.2% 7.8% 7.8%
7.2%
6.7%54.9%
55.1%55.2%
55.7%
55.5%
55.7%
56.1%
56.5%
56.1%
55.5%
55.7%
56.5%56.6%
6.0%
6.5%
7.0%
7.5%
8.0%
8.5%
9.0%
9.5%
2005Q1
Q2 Q3 Q4 2006Q1
Q2 Q3 Q4 2007Q1
Q2 Q3 Q4 2008Q1
54.5%
55.0%
55.5%
56.0%
56.5%
57.0%
Unemployment Rate
Participation in the Labor Force
The Participation Rate in the Labor Force peaked at 56.6%.The Participation Rate in the Labor Force peaked at 56.6%.
23
Inflation Rate (Rate of Change in CPI, end of year)
Source: Central Bureau of Statistics, Ministry of Finance
1.3% 0.0% 1.4%
6.5%
-1.9%
1.2%
2.4%
-0.1%
3.4%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
1999 2000 2001 2002 2003 2004 2005 2006 2007 *
After a 1.5% increase in April and 0.6% in May, CPI inAfter a 1.5% increase in April and 0.6% in May, CPI inJune 2008 grew by 0.1%.June 2008 grew by 0.1%.
24
Inflation Rate Worldwide (Rate of Change in CPI, end of 2007)
The Bank of Israel has raised its interest rate to 3.75%, facing a The Bank of Israel has raised its interest rate to 3.75%, facing a rising CPI in the second quarter of 2008.rising CPI in the second quarter of 2008.
25
0%1%2%3%4%5%6%7%8%9%
3.4%
Sources: Central Bureau of Statistics, OECD
Criteria
Real GDP+ 4.2%
Business GDP+ 4.9%
Exports+ 6.4%
Private Consumption+ 4.6%
Public Consumption+ 2.0%
Investment in Fixed Assets+ 7.3%
Source: Ministry of Finance
Growth of Main GDP Components 2008
2008 Projection
26
Balances
Budget Deficit;
Current Account;
Net Foreign Debt
General Government Expenditure
Gross Public Debt
Gross Tax Burden
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29
30
31
Gross Public Debt (as percentage of GDP)
Source: Ministry of Finance
99.6%
102.0%100.7%
97.0%
86.7%
80.8%
80%
85%
90%
95%
100%
105%
2002 2003 2004 2005 2006 2007
Since 2003, the gross public debt has been on a downward trend.Since 2003, the gross public debt has been on a downward trend.
28
Source: Ministry of Finance
Budget Deficit and General Government Expenditure
0.00% 1.00% 2.00% 3.00% 4.00% 5.00%
2007
2006
2005
2004
2003
2002
2001
2000
1999
29
Budget DeficitBudget Deficit
0.00%1.00%2.00%3.00%4.00%5.00%6.00%
2007
2005
2003
2001
1999
Government ExpenditureGovernment ExpenditureBoth Government Both Government expenditure and budget expenditure and budget
deficit have been deficit have been decreasing since 2003decreasing since 2003
Tax revenues up byTax revenues up by 6.7% in 2007 6.7% in 2007
Current Account and Net Foreign Debt
Source: Bank of Israel
-1.3% -0.6%1.2%
2.4%
3.3%
6.0%
3.2%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
2001 2002 2003 2004 2005 2006 2007
In 2003, current account turned positive, In 2003, current account turned positive, conversely with the decrease of the net foreign debt.conversely with the decrease of the net foreign debt.
Current Account
Net Foreign Debt
2.8%0.1%
-2.3%
-5.7%-8.2%
-15.5%
-22.7%-25.2%
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
2000 2001 2002 2003 2004 2005 2006 2007
30
Source: Ministry of Finance, OECD *As of 2005
Gross Tax Burden (as % of GDP)
Tax burden has been in the vicinity of OECD average since 2003Tax burden has been in the vicinity of OECD average since 2003
37.1%
38.1% 38.1%
37.5%
36.4% 36.4% 36.4%
36.8%
37.3%
1999 2000 2001 2002 2003 2004 2005 2006 2007
31
- - - OECD countries average: 36.2%*
International comparisons
and additional data
Capital Raised by Israeli Venture Capitals
Central Bank Interest Rates
NASDAQ and Tel Aviv 100 Indices
Israel’s Credit Rating
Global Competitiveness Index
Global Competitiveness Index: Selected Issues
Business Competitiveness Index ;Network Readiness Index
Figures from Tel Aviv Stock Exchange
Press for desired slide or continue:
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37
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Capital Raised by Israeli Venture Capitals (By Vintage Year*)
ICTICT**** product has been growing rapidly in recent years, product has been growing rapidly in recent years, exceeding the rate of total growthexceeding the rate of total growth
33
0
500
1000
1500
2000
2500
3000
2007200620052004200320022001200019991998
Vintage year – first capital call or first investment, Including venture lending. **Information and communication technologies.
Source: Israel Venture Capital (IVC)
Central Bank Interest Rates
Israel vs. U.S.A
Source: Bank of Israel (BOI), Federal Reserve
0%
1%
2%
3%
4%
5%
6%
1 2 3 4 5 6 7 8 9 10
11
12
1 2 3 4 5 6 7 8 9 10
11
12
1 2 3 4 5 6 7 8 9 10
11
12
1 2 3 4 5 6 7
2005 2006 2007 2008
Bank of Israel Rate
U.S. Federal Funds Rate
3.75%
2.0%
34
NASDAQ & Tel Aviv 100 (monthly average)
1000
1500
2000
2500
3000
3500
4000
200
300
400
500
600
700
800
900
1000
1100
1200
Nasdaq (left scale)
Tel Aviv 100 (right scale)
Source: Tel Aviv Stock Exchange (TASE) and the Ministry of Finance. 35
Source: Credit Rating Agencies, Accountant General
Israel’s Credit Rating 1992-2008
A1/A+
A2/A
A3/A-
Baa1/BBB+
Baa2/BBB
Baa3 /BBB-
Moody's raised Israel bond ratings to 'A1' from 'A2'Moody's raised Israel bond ratings to 'A1' from 'A2'
Real GDP Growth(Annual percentage of change, partial list)
0%
2%
4%
6%
8%
10%
12%
Source and projections: OECD and the Ministry of Finance, Israel
2.7%1.8%
07’ 08’
OECD has given Israel the Roadmap for accession to the organization...OECD has given Israel the Roadmap for accession to the organization...
07’ - 5.3%
08’ - 4.2%
42
Unemployment Rate
(average)
Source: OECD, Ministry of Finance
Following the Roadmap, Israel has already submitted the initial memorandum Following the Roadmap, Israel has already submitted the initial memorandum
0% 2% 3% 5% 6% 8% 10% 11%
Total OECD
Euro area
Slovak Republic
Greece
Spain
Portugal
Israel
Hungary
Finland
Italy
Ireland
United States
Korea
Switzerland
Norway
08
’ 07
’
43
08’ 07’
08’ 07’
08’07’
GDP per capita based on purchasing-power-parity (PPP)
2007, (in US$)
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
33,294 25,758
Source: Economics and Research Department calculations from OECD and the Central Bureau of Statistics data 44
18 professional Israeli teams are currently answering OECD 18 professional Israeli teams are currently answering OECD questionnaires, designated to review Israel’s policy questionnaires, designated to review Israel’s policy