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8/8/2019 Israel's Economy November 2010
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Overview of Israels EconomyOverview of Israels Economy
Economic Mission,Economic Mission, EmbassyEmbassy of Israel, Washington DCof Israel, Washington DC November 2010
Government of IsraelGovernment of IsraelMinistry of FinanceMinistry of Finance
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F acts & F iguresF acts & F igures
GDP (2009)USD 186.4 billion
GDP per capita (2009 est.)USD 28.5k
GDP Growth rate2006 - 5.3%2007 - 5.2%2008 - 4.2%2009 - 0.8%
Economy
Advanced industrializedExport-led market economyMember of OECD (June 2010)
Area21,500 sq km
Source : Israel Central Bureau of Statistics
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S teady GrowthS teady Growth
Discussion OutlineDiscussion Outline
33
44
S ound Monetary PolicyS ound Monetary Policy55
Responsible Fiscal PolicyResponsible Fiscal Policy
Business InnovationBusiness Innovation11
Global ReputationGlobal Reputation22
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WeWe areare blessed blessed withwith thethe leadingleading per per capitacapita knowledgeknowledge- -based based
economyeconomy in in thethe world world. . ThisThis isis thethe sourcesource of of thethe worldsworlds wealthwealth in in
thethe 21 21st st centurycentury thethe abilityability to to produce produce knowledgeknowledge- -based based
products products. .
Stanley Fischer
Governor of the Bank of Israel
(2nd term swearing-in ceremony, May 2010
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Israel is a Leader in Business InnovationIsrael is a Leader in Business Innovation
65 Israeli companies are traded on NA S DAQ* -More than all European Countries combinedMore than India, Japan and Korea combined
Venture capital investment per capita in Israel*-2.5 times more than the U.S.6times more than the United Kingdom
* Dan Senor , Start-Up Nation: The Story of Israel's Economic Miracle
T he StartT he Start- -Up NationUp Nation
Source : WEF Global Competitiveness Report 2008-2009
0
20
40
60
80
100
120
140
1 1 12 2 2 3 4 4 5 7
44
65
124
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Israeli technology is essential to many of the applications used daily byIsraeli technology is essential to many of the applications used daily bymillions such as:millions such as:
PC-Pentium developed by Intel Israel
Enterprise network security Checkpoint
World leader in generic drugs Teva
Advanced voicemail systems, based on Comverse's technology
Billing systems for telephone companies designed by Amdocs
Pioneering instant messaging ICQ
Flash data storage - M-S ystems ( S anDisk)
Medical devices and biotech ( Given Imaging, Medinol, Proneuron )
Israeli T echnology and the WorldIsraeli T echnology and the World
Source : Israel Venture Association6
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Israel Is a World Leader in Science, T echnology, and InnovationIsrael Is a World Leader in Science, T echnology, and Innovation
Source : IMD Global Competitiveness Yearbook 2008-2009
Civilian R&D as % of GDP
0.0
1.0
2.0
3.0
4.0
5.0
6.0
I s r a e l
S w e d e n F i n
l a n d K o r e a J a p a
n
S w i t z e
r l a n d U S
A u s t r i a D e
n m a r k
G e r m a n
y
O E C D
A v g
F r a n c e A u
s t r a i l i a C a n a d
a
B e l g i u m U
K
N e t h e
r l a n d s N o r w a y
L u x e
m b o u r g
C z e c h R
e p u b l i c I r e l a n
d S p a i
n
N e w Z
e a l a n d
P o r t u g a
l I t a l
y
Ranked 1st for totalexpenditure on R&D
Ranked 3rd for Registered
Patents Per Capita
Ranked 3rd for Quality of S cientific ResearchOrganizations
Leads the world in NobelLaureates per capita.
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S teady GrowthS teady Growth
Discussion OutlineDiscussion Outline
33
44
S ound Monetary PolicyS ound Monetary Policy55
Responsible Fiscal PolicyResponsible Fiscal Policy
Business InnovationBusiness Innovation11
Global ReputationGlobal Reputation22
8
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Main IndicesMain Indices 1010 Years Accumulated Returns ( Years Accumulated Returns (2000 2000--20092009))
Israel presents a unique investment opportunityIsrael presents a unique investment opportunity
Combining emerging market growth with western market standards.
Source : Bloomberg
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S elected International TechnologyS elected International TechnologyFirmsFirms I Investednvested in Israelin IsraelS elected IsraeliS elected Israeli BasedBased CCompaniesompanies
G lobalG lobal ReputationReputation
Source: Central Bureau of Statistics10
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30
32
34
36
38
40
42
44
46
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Imports
Exports
Openness of the Israeli EconomyOpenness of the Israeli Economy(percentage of G DP,(percentage of G DP, 19951995--20092009))
Source: Central Bureau of Statistics11
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12
50%
0%
40%
30%
20%
10%
33%
39%
16% 16% 14%12%
7%
5%
ExportExport of of GoodsGoods andand S ervicesS ervices as % of GDP (as % of GDP (20092009))
GDP grew betweenGDP grew between 19951995 andand 20092009 from $from $9696bn to $bn to $ 195195bnbn ,,whereas export as % of GDP grew fromwhereas export as % of GDP grew from 1313%% toto 3939%%
Openness of the Israeli EconomyOpenness of the Israeli Economy
Source : IMF, OECD, CIA, CBS
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Israels Trade PartnersIsraels Trade Partners - - Imports and Exports of GoodsImports and Exports of Goods (excl. diamonds)*(excl. diamonds)*
F ree Access to Key G lobal MarketsF ree Access to Key G lobal Markets
Exports Imports
Free Trade Agreements
Source: Central Bureau of
Asia20%
O r s+21%
Eu r anUnion33%
N. Ame r ica26%
N. Ame r ica10%
Eu r opeanUnion33%
O e r s+35% Asia
22%
* As of January, 2010 + Others include: Central / South America, Africa and Oceania
13
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S teady GrowthS teady Growth
Global ReputationGlobal Reputation
Discussion OutlineDiscussion Outline
22
33
44
S ound Monetary PolicyS ound Monetary Policy55
Responsible Fiscal PolicyResponsible Fiscal Policy
Business InnovationBusiness Innovation11
14
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6.5%
5.6%
2.9%
4.3%
3.3%
9.2%
0.0%
-0.7%
1.5%
5.0% 5.1% 5.3% 5.2%
4.2%
0.8%
3.6% 3.8% 4.0%
-2%
0%
2%
4%
6%
8%
10% Average Growth 1950-1972: 10.2%
Average Growth 1973-2008: 4.1%
*2010 Official BOI Forecast
G DP G rowthG DP G rowthAnnual Percent ChangeAnnual Percent Change
4.0%
0.9% 0.8%
-7.5%
-3.7%-4.1%
-3.0%
0.5%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
Israel* Ireland Spain E U Avg
2008 2009
Source: Central Bureau of Statistics and European Commission for EU Members15
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2 0 0 9
2 0 0 9 P
er
C a pi t a
P er
C a pi t a
GDP
GDP
( ( C ur r en
t P r i c
e s , U S D
ol l ar s
)
C ur r en
t P r i c
e s , U S D
ol l ar s
)
GDP
GDP P
e r
P
e r C a pi t a
C a pi t a
S o ur c e: I MF
, 0 0 9
0
1 0
, 0 0 0
2 0
, 0 0 0
3 0
, 0 0 0
4 0
, 0 0 0
5 0
, 0 0 0
6 0
, 0 0 0
7 0
, 0 0 0
Swi t
it S t t sFinland
F an c
J apan
Germany
Gree ce
Is rael
Slovenia
P or t al
Mal ta
Cze ch Republi c
Korea
Slovak Republi c
Es tonia
Hungary
P oland
LithuaniaLa tvia
Russ ia
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8.9% 8.7%
9.3%
10.3%10.8%
10.3%
9.0%8.4%
7.3%
6.1%
7.6%
7.1%
53%
54%
55%
56%
5%
7%
9%
11 %
U nemployment rates(left axis)
Unemployment and Participation RatesUnemployment and Participation Rates
Participation rates(right axis)
6.1 6.0
7.07.6
11.7
17.9
9.1
11.3
0.0
5.0
10.0
15.0
20.0
Israel Ireland Spain EU Avg
2008 2009
Source: Bank of Israel and European Commission for EU Members17
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Global ReputationGlobal Reputation
Responsible Fiscal PolicyResponsible Fiscal Policy
Business InnovationBusiness Innovation
Discussion OutlineDiscussion Outline
22
33
44
S ound Monetary PolicyS ound Monetary Policy55
S teady GrowthS teady Growth11
18
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G overnment ExpenditureG overnment Expenditure
General Government ExpenditureGeneral Government Expenditure(% of GDP)(% of GDP)
42.9
42.0
46.8
42.9
46.9
45.2
50.4
41.1
9
Source: Bank of Israel and Ministry of Finance Projections and European Commission for EU 19
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B udget DeficitB udget Deficit
Source: Bank of Israel, 2009
Government Budget DeficitGovernment Budget Deficit(%(% of of GDP,GDP, 20002000--20102010))
00
0
100
10
200 200
20
4.1%
0.6%
4.1%
3.5%
5.2%
3.5%
1.8%
1.0%
0.0%
2.2%
5.2%
6.0%
5.5%
3.0%
2.0%
1.0%
1.5%
0%
1%
2%
3%
4%
5%
6%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010* 2011 2012 2013 2014
Est.Budget DeficitCeiling
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G ross Public Debt as a % of G DP
100.6 99 .9101.3
95.3
85.1
89.9
97 .6
99 .998.2
94.3
85.5
7 8.377 .1
7 9.677 .7
97 .4 96.898.4
92.6
82.6
87 .4
95.197 .4
96
92.2
83.5
7 6.47 5.4
77 .97 6
65
7 0
7 5
80
85
90
95
100
105
199 6 199 7 199 8 1999 2000 2001 2002 2003 2004 2005 2006 200 7 2008 200 9 2010*
Public Debt Central Gov. Debt
Source: Ministry of Finance and Bank of Israel *Estimate Ministry of Finance
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-50
0
50
100
150
200
J a p a n
I c e l a n d
I t a l y
G r e e c e
B e l g i u m
S p a i n
U S A
P o r t u g a l
H u n g a r y
C a n a d a
U K
G e r m a n y
I r e l a n d
I s r a e l
A u s t r i a
N e t h e r l a n d s
O E C D A V G
F r a n c e
P o l a n d
N o r w a y
S w e d e n
C z e c h R e p u b l i c
F i n a l n d
D e n m a r k
S w i t z e r l a n d
S o l v a n i a
K o r e a
N e w Z e a l a n d
L u x e m b o u r g
A u s t r a i l i a
T he Increase in Public Debt as a Percentage of G DPT he Increase in Public Debt as a Percentage of G DP
The 60 % Maastrict
Level
2007 2010
Source: OECD, Ministry of Finance -Research Division22
T he rise in the Israeli public debt is relatively moderate. T he current publicdebt- G DP ratio is close to OECD average.
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2010 2011 2012 2013 2014 2015 2016
Maximum marginalincome tax
4 5% 4 5% 44 % 43 % 4 2 % 4 1 % 3 9%
Corporate tax 2 5% 2 4 % 2 3 % 22 % 21 % 20 % 1 9%
T ax PolicyT ax Policy
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19841988 19881992 19921996 2006200919961999 19992001 20012005
ProPro--MarketMarket ReformReform PoliciesPolicies
1998: ForeignCurrencyLiberalization
19971998: Boost of Privatizations
2003: GovernmentCutbacks, TaxReform, S econdPension Reform
1990: S uccessfulabsorption of massiveimmigration enhancesgrowth
1985: S tabilizationProgram
1995: FirstPension Reform
1995: First S overeignIntl Debt Issuance
2000-2001: CapitalMarket Opening andS tructuralReforms, Debt BurdenReduction
20062009: CapitalMarketsReforms, FiscalTightening, FinancialS timulus Package
UnityGovernment
Left WingGovernment
Left WingGovernment
CentristGovernment
ight Wing
Government
ight Wing
Government
ight Wing
Government
24
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Global ReputationGlobal Reputation
Business InnovationBusiness Innovation
Discussion OutlineDiscussion Outline
22
33
S teady GrowthS teady Growth11
S ound Monetary PolicyS ound Monetary Policy55
Responsible Fiscal PolicyResponsible Fiscal Policy44
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Source: Bank of Israel
Year Year- -End Inflation RateEnd Inflation Rate Central Banks Key Interest RateCentral Banks Key Interest Rate
0
2
4
6
8
10
1 / 0 3
1 / 0 4
1 / 0 5
1 / 0 6
1 / 0 7
1 / 0 8
1 / 0 9
1 / 1 0
Today = 1.25%
Inflation is Under ControlInflation is Under Control
0.0
1.4
6.5
-1.9
1.2
2.4
-0.1
3.4 3.83.9
-4.0
-2 .0
0.0
2 .0
4.0
6.0
8.0
2 0 0 0
2 0 0 1
2 0 0 2
2 0 0 3
2 0 0 4
2 0 0 5
2 0 0 6
2 0 0 7
2 0 0 8
2 0 0 9
2 6
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Current Account Has B een in Surplus Seven Years DespiteCurrent Account Has B een in Surplus Seven Years DespiteStrength of the ShekelStrength of the Shekel
-
-
--
-
-
-
-
-
-
--
-6%
-5%
- %
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
1
0
1
1
1
2
1
3
1
4
1
5
1
6
1
7
1
8
1 2 0 0 0
2 0 0 1
2 0 0 2
2 0 0 3
2 0 0 4
2 0 0 5
2 0 0 6
2 0 0 7
2 0 0 8
2 0 0
Current Account BalanceCurrent Account Balance(%(% of of GDP)GDP) TheS hekel vs. U S D, EuroThe S hekel vs. U S D, EuroEuro US D
3 .5
4 .0
4 .5
5 .0
5 .5
6 .0
6 .5
J a n - 0
8
F e b - 0
8
M a r - 0 8
A p r - 0 8
M a y - 0
8
J u n - 0
8
J u
l - 0 8
A u g - 0
8
O c t - 0 8
N o v - 0
8
D e c - 0
8
J a n - 0
M a r - 0
A p r - 0
M a y - 0
J u n - 0
J u
l - 0
S e p - 0
O c t - 0
N o v - 0
D e c - 0
2.8
3.1
3.4
3.7
4.0
4.3
4.6
Euro Dollar
S ource: Reuters and the Bank of Israel
27
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B ank of Israels F oreign Exchange Reserves ClimbedB ank of Israels F oreign Exchange Reserves ClimbedSharply inSharply in 20092009
60 .6
27 .228 . 29 .0
42 .
29 .6
10 .0
20 .0
30 .0
40 .0
50 .0
60 .0
70 .0
2004 2005 2006 2007 2008 200
X Rese rves S$ Billions)
Source: Bank of Israel Reserves as of the end of February, 2010 = $60.7 billion
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Strong B anking SystemStrong B anking System
9.2 9.49.9 10.3
10.7 10.7 10.8 1111.3 11.6
12.813.4
678
91011121314
2000 2001 2002 2003 2004 2005 2006 2007 2008 Q12009
Q22009
Q32009
Total Capital Ratio
Source: Bank of Israel
Re al Es tat e:
Low LTV rate in Israel (around 50%- 60%)
Israel did not experience a mortgage default crisis during the recent market downturn
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Size and Structure of G overnment DebtSize and Structure of G overnment Debt
D tT d l
D tT d l
2
9
Total Government Debt for Year EndTotal Government Debt for Year End 2009 2009: U S $: US $ 158158 billionbillion
Other 6%
SovereignBonds
21%
BondsGuaranteedby the USA
45%
Bonds Org.28%
S ource: Ministry of Finance USD/ILS Rate of 3.78
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Size and Structure of G overnment DebtSize and Structure of G overnment Debt
Domestic
Tradable57%
DomesticNon
Tradable24%
ForeginCurrency
19%
Total Government Debt for Q3 2010: U S $ 163 billion
BondsOrg.26%
BondsGuarantee
d by theUS A42%
S overeignBonds
25%
Other 7%
Source: Ministry of Finance
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S overeign Foreign Currency Rating Peers
S overeign Moodys S &P
Chile A2 A+
Czech . A1 A
Lithuania Baa1 BBB+
S. Korea A1 A
Poland A2 A-
China A1 A+
Slovakia A1 A+
Latvia Baa3 BB
Cyprus Aa3 A+
Hungary Baa1 BBB-Estonia A1 A-
Greece Ba1 BB+
Taiwan Aa3 AA-
Steady Climb in Ratings Reflects Sound Policies and aSteady Climb in Ratings Reflects Sound Policies and aDynamic Private SectorDynamic Private Sector
199 2 1 99 3 1 99 4 1 99 5 1 99 6 1 99 7 199 8 1 999 2000 2001 2002 2003 2004 2005 2006 200 7 2008
Moody's S&P Fitch
A1/A+
A2/A
A3/A-
Baa1
Baa2/BBB
Baa3/BBB-
Aa3/AA-
Israels Current RatingIsraels Current Rating
Moodys - A1 ( S table)S &P A ( S table)
Fitch A ( S table)
April 2008Moodys upgrade
Israel To A1
Feb 2008Fitch upgrade
Israel To A
Nov 200 7S &P upgrade
Israel To A
Source: Credit Rating Agencies 32
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