Israel’s Economic Highlights Presentation, Q4 2011

Economic Highlights Presentation

4th Quarter 2011

STATE OF ISRAEL

MINISTRY OF FINANCE

International Affairs Department

In any case of information derived from sources external to the Ministry of Finance, such sources are mentioned at the bottom of each item

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Table of Contents

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Balances

International Comparisons

Main Economic Indicators

Israel in the OECD

Learn More

Contact

International Agreements

Table of Contents

Main Economic Indicators

GDP and Business GDP

Major GDP Components

Exports of Goods and Services

Foreign Investments

Unemployment and Participation

Consumer Price Index

Inflation Rate

Economic Figures

Main Trading Partners

Israel’s Credit Ratings

Gross Domestic Capital Formation

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Economic Figures

* Using a public exchange rate of 1USD=3.7NIS (2010 average) ** Estimated

Criteria 2009 2010 2010 Q4 2011 Q1 2011 Q2 2011 Q3

GDP (constant prices, 2005, in $B)*

189.9 199.0 50.9 51.5 51.9 52.4

Real GDP growth rate (% change)

0.8% 4.8% 7.2% 4.7% 3.5% 3.4%

GDP per capita, based on PPP (Current international $)

28,526$ 29,901$ -- -- -- --

GDP per capita growth rate (%, 2005 prices)

-0.9% 2.9% 8.6% 5.2% 2.6% 5.3%

Exports (goods & services), $B* (As % of GDP)

75.1 39.5%

85.3 42.9%

22.1 43.4%

22.5 43.7%

22.6 43.5%

21.5 41.0%

Imports (goods & services), $B* (As % of GDP)

71.0 37.4%

80.0 40.2%

20.7 40.7%

21.9 42.5%

22.4 43.2%

22.0 42.0%

Unemployment rate 7.6% 6.6% 6.5% 6.0% 5.5% 5.6%

Additional Sources: IMF

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Economic Figures

Criteria 2005 2006 2007 2008 2009 2010

Public debt (As % of GDP)

93.8% 84.3% 77.8% 77.1% 79.3% 76.3%

General government expenditure (As % of GDP)

45.3% 44.7% 43.6% 43.0% 43.0% 42.6%

Current account surplus (As % of GDP)

3.1% 5.1% 2.9% 0.9% 3.6% 2.9%

Inflation rate (CPI, yearly average, % change)

1.4% 2.1% 0.5% 4.6% 3.3% 2.7%

Budget deficit (As % of GDP)

1.8% 0.9% 0.0% 2.2% 5.2% 3.7%

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-0.3% -0.6%

1.5%

4.8% 4.9%

5.6% 5.5%

4.0%

0.8%

4.8%

7.2%

4.7%

3.5% 3.4%

-1.2% -1.0%

2.3%

6.1%

6.8% 6.8%

6.1%

4.5%

0.4%

5.8%

8.6%

5.2%

2.6%

5.3%

-3%

-1%

1%

3%

5%

7%

9%

11%

GDP Business GDP

GDP and Business GDP Annual rate of change, constant prices, 2005

In 2010, Israel has recovered from the global economic crisis, and is back to previous years’ growth rates. In the 3rd quarter of 2011, business GDP recovered sharply.

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Major GDP Components Annual rate of change, constant prices, 2005

4.2%

6.3%

2.8%

1.4% 1.4%

3.0% 3.3% 2.1% 2.2% 2.2%

13.1%

14.5%

4.4%

-5.8%

13.7%

5.5%

9.2%

6.6%

-12.5%

13.6%

-15%

-10%

-5%

0%

5%

10%

15%

20%

Private Consumption

Public Consumption

Investment in Fixed Assets

Exports of Goods and Services

Global economic crisis

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Exports of Goods and Services US $ Billions, constant prices, 2005

30.19 36.66 39.77

43.32 50.29

57.71

46.33

56.09

13.39

16.03 17.45

19.27

21.13

24.09

21.98

24.23

0

10

20

30

40

50

60

70

80

90

Services Goods

* Using a public exchange rate of 1USD=3.7NIS (2010 average)

Global economic crisis

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Main Trading Partners US $ Billions, 2010

18.5

6.0

3.1 2.9 2.3

1.8 1.7 1.3 1.3 1.3

0

2

4

6

8

10

12

14

16

18

20Exports

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

Additional Sources: Central Bureau of Statistics

6.7 6.1

3.7 3.2

2.4 2.2 2.1 1.8 1.8 1.8

0

1

2

3

4

5

6

7

8Imports

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Main Trading Partners US $ Billions, 2010

Additional Sources: Central Bureau of Statistics

19.2

21.9

15.4

18.9

9.6 12.0

9.3

12.9

19.9

21.2 17.6

19.6

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

2007 2008 2009 2010

Exports

Europe

Asia

North America

26.8

29.7

22.9

26.5

11.7 13.2

9.8

13.0

8.3 8.7 6.3 7.3

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

2007 2008 2009 2010

Imports

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Gross Domestic Capital Formation

19.2%

18.0%

17.6%

18.9%

19.3%

20.3%

19.6%

17.9% 18.1%

16%

17%

18%

19%

20%

21%

As % of GDP

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Foreign Investments US $ Billions

4.9 4.3

9.5

8.3

19.4

14.4

10.8 10.7

17.6

1.6

3.3 2.4

4.3

15.3

8.8

10.9

4.4 5.2

0

5

10

15

20

25

Total Investments Direct Investments

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

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Unemployment and Participation As % of total labor force

6.4%

7.5%

7.9%

7.6%

7.2%

6.9%

6.5% 6.6%

6.5%

6.0%

5.5% 5.6%

56.8% 57.0% 56.8% 56.8% 56.8% 56.7%

57.2%

57.7% 57.7%

57.5% 57.49% 57.4%

54%

55%

56%

57%

58%

59%

4%

5%

6%

7%

8%

9%

Q4 2009 Q1 Q2 Q3 Q4 2010 Q1 Q2 Q3 Q4 2011 Q1 Q2 Q3

Unemployment Rate

Participation in the Labor Force

Since the 2nd quarter of 2009 unemployment is relatively decreasing, hand in hand with a relative increase in participation rate since the 1st quarter of 2010.

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Consumer Price Index Last 24 monthly averages, 2010=100

99.1 99.1

98.5 98.2 98.3

99.2 99.5

99.8

100.3

100.8 101.0

101.3 101.4 101.8

102.0 102.3

102.5

103.1

103.6 104.0 104.1 104.0

104.2

103.7 104.0

95

96

97

98

99

100

101

102

103

104

105

Additional Sources: Central Bureau of Statistics

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Inflation Rate Rate of change in consumer price index, yearly average

0.7%

-0.4%

1.4%

2.1%

0.5%

4.6%

3.3%

2.7%

-1%

0%

1%

2%

3%

4%

5%

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Israel’s Credit Ratings

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

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Balances

International Comparisons

Main Economic Indicators

Israel in the OECD

Learn More

Contact

International Agreements

International Comparisons

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Budget Deficit

Current Account Surplus

General Government Expenditure

Net Foreign Surplus

Gross Public Debt

Gross Tax Burden

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Gross Public Debt As % of GDP

99.1%

97.4%

93.8%

84.3%

77.8% 77.1%

79.3%

76.3%

70%

75%

80%

85%

90%

95%

100%

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

Global economic crisis

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Budget Deficit As % of GDP

5.2%

3.5%

1.8%

0.9%

0.0%

2.2%

5.2%

3.7%

0%

1%

2%

3%

4%

5%

6%

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-16,061

-3,626

-6,721

-3,657

-16,161

-6,371 -4,862

-39,286

-30,165

-44,355 -42,924

-50,000

-40,000

-30,000

-20,000

-10,000

0

Quarterly Budget Execution Yealy Budget Execution Yearly Budget Target

Budget Deficit Target and execution in NIS million, current prices

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. The proven effectiveness and functionality of the biennial budget have led the government to adopt the biennial budget for a second period through 2011-2012.

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General Government Expenditure As % of GDP

50.1%

47.3%

45.3%

44.7%

43.6%

43.0% 43.0% 42.6%

38%

39%

40%

41%

42%

43%

44%

45%

46%

47%

48%

49%

50%

51%

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Current Account Surplus As % of GDP

1.2%

2.3%

3.1%

5.1%

2.9%

0.9%

3.6%

2.9%

0%

1%

2%

3%

4%

5%

6%

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Net Foreign Surplus As % of GDP

1.7%

4.5%

10.9%

14.7%

22.5% 22.6%

26.3% 26.6%

0%

5%

10%

15%

20%

25%

30%

* Using a public exchange rate of 1USD=3.7NIS (2010 average)

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Gross Tax Burden As % of GDP

35.5% 35.5% 35.6%

35.9%

36.2%

33.8%

31.4%

32.4%

30%

31%

32%

33%

34%

35%

36%

37%

Additional Sources: OECD

OECD countries average: 34.8% (2008 average)

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Balances

International Comparisons

Main Economic Indicators

Israel in the OECD

Learn More

Contact

International Agreements

International Comparisons

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Inflation Rates

Israel on WEF Rankings

Israel on IMD Rankings

Interest Rates: Israel & the U.S.

GDP Growth

Stock Indices: NASDAQ & Tel-Aviv 100

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

4.8% 4.9%

5.6% 5.5%

4.0%

0.8%

4.8%

3.1% 2.7%

3.1% 2.8%

0.1%

-3.7%

3.1%

-4%

-2%

0%

2%

4%

6%

8%

Israel Advanced Economies

Additional Sources: IMF

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

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

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Inflation Rates Rate of change in consumer price index, yearly average

Additional Sources: IMF

3.3%

0.1%

1.6%

0.2%

-1.7%

-1.4%

2.2%

-0.9%

-0.5% -0.3%

2.7%

1.6% 1.7%

1.2%

-1.6%

-0.7%

2.4%

1.4%

0.7%

1.6%

-2%

-1%

0%

1%

2%

3%

4%

2009 (dark) 2010 (bright)

The Israeli economy demonstrated high stability compared to other countries throughout the global economic crisis.

The Institute for Management Development

ranked Israel 17th out of 59 countries for 2011

(Israel was also ranked 17th in 2010)

Israel on IMD Rankings IMD World Competitiveness Yearbook 2011

Additional Sources: IMD World Competitiveness Yearbook 2011 30

Information technology skills Central bank policy

Entrepreneurship Flexible and adaptability

Israel on IMD Rankings IMD World Competitiveness Yearbook 2011

Additional Sources: IMD World Competitiveness Yearbook 2011 31

Total expenditure on R&D (as % of GDP) Scientific research

Innovative capacity Venture capital

Israel on IMD Rankings IMD World Competitiveness Yearbook 2011

Additional Sources: IMD World Competitiveness Yearbook 2011 32

Israel on WEF Rankings World Economic Forum Global Competitiveness Index 2011-2012

Additional Sources: World Economic Forum Global Competitiveness Index 2011-2012

The World Economic Forum ranked Israel 22nd

out of 142 countries for 2011-2012

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Quality of scientific research institutions Venture capital availability

Strength of investor protection Utility patents per million population

Israel on WEF Rankings World Economic Forum Global Competitiveness Index 2011-2012

Additional Sources: World Economic Forum Global Competitiveness Index 2011-2012 34

Government procurement of advanced technology products Capacity for innovation

University-industry collaboration in R&D Firm-level technology absorption

Israel on WEF Rankings World Economic Forum Global Competitiveness Index 2011-2012

Additional Sources: World Economic Forum Global Competitiveness Index 2011-2012 35

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Interest Rates: Israel & the U.S.

1.25%

1.50%

1.75%

2.00%

2.50%

3.00%

3.25%

3.00%

2.75%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

Bank of Israel Federal Reserve =0

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 3.25%.

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Stock Indices: NASDAQ & Tel-Aviv 100

2,000

2,100

2,200

2,300

2,400

2,500

2,600

2,700

2,800

2,900

3,000

500

600

700

800

900

1,000

1,100

1,200

1,300

1,400

1,500

Tel Aviv 100 NASDAQ

Tel Aviv 100 corresponds with the NASDAQ to current events, with relatively stable reactions.

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Balances

International Comparisons

Main Economic Indicators

Israel in the OECD

Learn More

Contact

International Agreements

Israel in the OECD

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Real GDP Growth

Unemployment

GDP per Capita

Expenditure on R&D

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

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Expenditure on R&D As % of GDP, 2010 or latest available year

Additional Sources: OECD

4.25%

2.33%

0%

1%

2%

3%

4%

5%

6%Israel is 1st in the OECD in expenditure on R&D (research & development) as % of GDP, demonstrating innovation, development and creativity.

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Real GDP Growth 3-year average, end of period

Additional Sources: OECD

-0.10%

3.19%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

11%Israel’s 3-year average growth rate is higher then most OECD members.

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GDP per Capita U.S $, Current prices, PPP, 2010

Additional Sources: OECD

28,510

34,025

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

43

Unemployment Rate 3-year average 2008-2010, or latest available period

Additional Sources: OECD

7.1% 7.7%

0%

5%

10%

15%

20%

25%Israel’s unemployment rate is in an ongoing downtrend, reaching an historic low level of 5.5% in Q2 2011.

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Balances

International Comparisons

Main Economic Indicators

Israel in the OECD

Learn More

Contact

International Agreements

International Agreements

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Avoidance of Double Taxation

Bilateral Investment Treaties

Cooperation in Industrial R&D

Israel’s Free Trade Agreements

Economic Organizations

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Israel’s Free Trade Agreements

QIZ Agreements 1985

1992

1997

1997

1999

2000

2007

USA

EFTA

Turkey

Canada

Mexico

European Union (Association Agreement)

MERCOSUR

2004

1998

Egypt

Jordan

More extended information is available in the Israel Ministry of Finance website

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Avoidance of Double Taxation

More extended information is available in the Israel Ministry of Finance website

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

Luxembourg

Mexico

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Avoidance of Double Taxation

More extended information is available in the Israel Ministry of Finance website

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

Malta

Panama

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Cooperation in Industrial R&D

More extended information is available in the Israel Ministry of Finance website

North America New York Massachusetts Maryland Virginia Wisconsin Colorado Illinois Oregon BIRD (Foundation) Ontario CIIRDF (Foundation)

South America Argentina Uruguay Brazil

Australia (Victoria)

Europe France Russia (Rusano, Skolkovo) Italy Germany Greece Czech Republic Bulgaria Lithuania Slovenia Denmark Hungary Turkey Portugal Finland Sweden Ireland * Through EUREKA (40 country Multilateral Initiative)

Asia China( Shanghai, Jiangsu, Most) India Taiwan SIIRD-Singapore (Foundation) KORIL-RDF-Korea (Foundation)

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Bilateral Investment Treaties

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

More extended information is available in the Israel Ministry of Finance website

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Bilateral Investment Treaties

South Africa

Thailand

Turkey

Turkmenistan

Ukraine

Uzbekistan

Slovakia

Slovenia

Serbia

Mongolia

Poland

Romania

Montenegro

Peru

Vietnam

More extended information is available in the Israel Ministry of Finance website

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Economic Organizations Membership in main international economic organizations

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

More extended information is available in the Israel Ministry of Finance website

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Table of Contents

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Balances

International Comparisons

Main Economic Indicators

Israel in the OECD

Learn More

Contact

International Agreements

Learn More

54

Visit the Israel Ministry of Finance English

website for more information:

Economic Overview of Israel

Other publications and reports on the Israeli economy

Ministry of Finance publications and reports

About the Ministry

Ministry press releases

Learn More

55

Bank of Israel

Ministry of Foreign Affairs

Ministry of Industry, Trade and Labor

Israel Central Bureau of Statistics

Israel Government Portal

Click to open:

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Balances

International Comparisons

Main Economic Indicators

Israel in the OECD

Learn More

Contact

International Agreements

Contact

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Mr. Roni Hershkovitz

Mr. Assaf Luxembourg

Mr. Jonah Balakhaneh

Overseas Economic Information

International Affairs Department

Ministry of Finance

State of Israel

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