ECONOMIC HIGHLIGHTS

STATE OF ISRAELMINISTRY OF FINANCE

INTERNATIONAL AFFAIRS DEPARTMENT

July 3, 2007

Contents:

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Economic Figures

Balances

International Comparisons, additional data and industryIsrael and the OECD

International Treaties

Israel’s Economy:

• Export Oriented Growth

• Rapid Development of Technology &

High-Tech Industries

• Entrepreneurial Culture

• Supportive Environment for Business

• Investment and R&D Incentives

Main Characteristics

EconomicFigures

GDP and GDP per Capita

Major GDP Components

GDP and Exports Growth

Exports of Goods and Services

Exports of Goods by Region

Structure of Industrial Exports

Imports of Goods and Services

Imports of goods by Region

Foreign Investments

Unemployment Rate

New Employed Persons

Inflation Rate

Estimations for 2007

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Main Indicators and Forecast

Criteria20032004200520062007F

GDP (current prices in B$)115.4128.9129.7140.5155.9*

GDP Real Growth rate (%)1.3%4.3%5.2%5.1%5.0%

GDP per Capita (current prices, thousands of $)

17.21818.719.921.9

GDP per Capita Growth rate (%)-0.5%3.0%3.4%3.2%3.2%

Exports of Goods & Services (B$)43.552.857.962.65.9%

Imports of Goods & Services (B$)44.452.357.561.75.3%

Unemployment Rate (%)10.7%10.4%9.0%8.4%7.4%

Inflation Rate ( CPI, end of year)-1.9%1.2%2.4%-0.1%1.0%

Current Account (% of GDP)0.5%0.4%3.3%4.9%

Source: Central Bureau of Statistics, Bank of Israel, Ministry of Finance – Economics and Research Department.

• Using the estimate NIS made by the Ministry of Finance, Multiplied by Bank of Israel’s average US$-NIS exchange rate for 2007.

• Predicted Annual % Change by the Ministry of Finance.

Main Economic Indicators and forecast

Economic Figures

5

Source: Central Bureau of Statistics, Ministry of Finance

8.0

4.6

-0.9

-2.9

-0.9

-2.9

1.5

-0.3

4.8

3.0

5.2

3.4

5.1

3.2

5.0

3.2

-5.0

-3.0

-1.0

1.0

3.0

5.0

7.0

9.0

2000 2001 2002 2003 2004 2005 2006 2007F

GDP GDP per Capita

GDP and GDP per Capita (Annual rate of Change (%), in Constant Prices)

Economic Figures

6

0.8

5.0

-6.0

-2.3

0.9

-2.3

-5.5

8.2

5.5

-2.3

0.3

18.2

3.42.7

2.95.1

4.83.3

6.44.9 4.9

2.9

8.0

5.1

-10

-5

0

5

10

15

20

2002 2003 2004 2005 2006 2007F

Private Consumption Government ConsumptionInvestment in Fixed Assets Exports of Goods and Services

Major GDP Components(Annual rate of Change (%), in Constant Prices)

Economic Figures

Source: Central Bureau of Statistics, Ministry of Finance 7

GDP Growth and Exports Growth(Cumulative Rate (%) of Growth by Period)

115%

188%

62%

120%

34%

54% 54%

100%

35%

82%

0%

50%

100%

150%

200%

1960-1969 1970-1979 1980-1989 1990-1999 1997-2006

GDP Growth Exports Growth

Source: Central Bureau of Statistics, Bank of Israel, Ministry of Finance

Economic Figures

8

Source: Central Bureau of Statistics

Exports of Goods and Services (B$)

27.5

11.8

30.2

13.3

36.6

16.1

40.1

17.8

43.3

19.2

0

10

20

30

40

50

60

70

2002 2003 2004 2005 2006

Goods Services

Economic Figures

9

Exports of Goods by Region(exc. Diamonds)

Africa3%

Other5%

Asia15.1%

Rest of Europe

6.8%

European Union32.9%

North America37.5%

Source: Central Bureau of Statistics, Bank of Israel, Ministry of Finance

Other8%

Latin America3%

Africa2%

Asia15%

Rest of Europe

6%

European Union36%

North America30%

2006

2007 Q1

Economic Figures

10

Of which: USA: 31.4%

Structure of Industrial Exports

7,895

15,962 14,862 13,525 14,16617,308 18,794

21,91523,754

8,078

5,1884,731

4,7304,836

4,277

6,3216,694

7,219

0

5,000

10,000

15,000

20,000

25,000

30,000

1995 2000 2001 2002 2003 2004 2005 2006 2007*

US

$ m

illi

on

s

traditional industries

hi-tech industries

35%

65%

23%24%

76%77%

27%

74%

26%27%

74%73%

26%

73%

75%

25% 25%

75%

Jan-Mar, seasonally adjusted, at annual rate.

Economic Figures

11

Source: Central Bureau of Statistics

Imports of Goods and Services (B$)

31.1

10.8

32.6

11.1

39.5

12.8

43.8

13.7

46.6

14.7

0

10

20

30

40

50

60

70

2002 2003 2004 2005 2006

Goods Services

Economic Figures

12

Imports of Goods by Region 2006 (excluding Diamonds)

Africa0.7% Other 16.6%

Asia19%

Rest of Europe

9.9%

European Union36.9%

North America 16.9%

Source: Central Bureau of Statistics, Bank of Israel, Ministry of Finance

Economic Figures

13

Of which: USA: 13.4%

Foreign Investments (B$)

Source: Ministry of Finance

1.7

4.53.1

9.6

5.2

12.3

3.7 4.11.7

3.2 3.95.4

2

9.1

4.8

9.5

14.2

25.8

0

5

10

15

20

25

30

1998 1999 2000 2001 2002 2003 2004 2005 2006

Direct Investments

Total Investments

Economic Figures

14

Unemployment Rate by Quarters(Rate of Total Labor Force)

Source: Central Bureau of Statistics

9.2%

9.0%8.9% 8.9%

8.8% 8.8%

8.3%

7.8% 7.8%54.9%

55.1%55.2%

55.6%55.5%

55.8%

56.1%

55.5%55.6%

7.0%

7.5%

8.0%

8.5%

9.0%

9.5%

2005 Q1 Q2 Q3 Q4 2006 Q1 Q2 Q3 Q4 2007 Q154.0%

54.5%

55.0%

55.5%

56.0%

56.5%

Unemployment Rate

Participation in the Labour Force

Economic Figures

15

-11

30

50

13

42

6

74

- 3

96

25

48

16

2001 2002 2003 2004 2005 2006

Business Sector Public Sector

New Employed Persons in 2006 (Change in Israeli Employed Persons, in Thousands)

Source: Ministry of Finance

Economic Figures

16

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%

2.1%

-2.00%

-1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

1999 2000 2001 2002 2003 2004 2005 2006 2007F

Economic Figures

17

CriteriaEstimate for 2007

Real GDP+5.0%

Business GDP+5.7%

Exports+5.9%

Private Consumption+5.1%

Government Consumption+2.9%

Investment in Fixed Assets+8.0%

Source: Ministry of Finance

Estimated Growth of Main GDP Components 2007

Economic Figures

18

Balances

Budget Deficit

Current Account

Net Foreign Debt

General Government Expenditure

Gross Public Debt

Gross Tax Burden

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Gross Public Debt (as percentage of GDP)

99.6%102.0%

100.7%

97.0%

87.7%

84.0%

80%

85%

90%

95%

100%

105%

2002 2003 2004 2005 2006 2007F

Source: Ministry of Finance

Balances

20

Source: Ministry of Finance, April 2007

Budget Deficit (As percentage of GDP)

3.2%

0.7%

4.2%

3.6%

5.4%

3.7%

1.9%

0.9%

2.9%

0%

1%

2%

3%

4%

5%

6%

1999 2000 2001 2002 2003 2004 2005 2006 2007Budget

proposal

Balances

(Expected: 1.5%)

21

Current Account (As percentage of GDP)

Source: Bank of Israel

-1.3% -0.6%

1.2%

2.3%

3.4%

5.7%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

2001 2002 2003 2004 2005 2006

Balances

22

2.8%0.1%

-2.3%

-5.7%

-9.3%

-16.7%

-24.5%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

2000 2001 2002 2003 2004 2005 2006

Net Foreign Debt (As percentage of GDP)

Source: Ministry of Finance

Balances

23

Source: Ministry of Finance

General Government Expenditure (As percentage of GDP)

52.1%

51.4%

50.7%

50.0%

48.4%

51.1%

52.2%

51.5%

49.2%

47.4%

46.8%

45%

46%

47%

48%

49%

50%

51%

52%

53%

54%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Balances

24

Source: Ministry of Finance

Gross Tax Burden (As percentage of GDP)

37.80%

36.80%

37.00%

38.1%38.2%

37.5%

36.6%36.7%

36.8%

37.2%

36.00%

37.00%

38.00%

39.00%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Balances

25

Internationalcomparisonsand additionaldata

ICT and Business Sector’s Product

Main Trading Partners

Central Bank Interest Rates

Nasdaq and Tel Aviv 100 Indices

Israel’s Credit Rating

Global Competitiveness Index

Business Competitiveness Index

Network Readiness Index

Dividend Distribute in past years

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Israel’s ICT* and Business Sector’s Product (Annual % change)

* Information and Communication Technology

Source: Central Bureau of Statistics

-1.9%

-14.8%

-2.8%

0.7%2.2%2.3%

6.8%

10.8%

6.7% 5.6% 6.4%

9.9%

-18%

-13%

-8%

-3%

2%

7%

12%

2001 2002 2003 2004 2005 2006

Business ICT

Additional data

27

Israel’s Main Trading Partners, 2006($US Billions)

5.2

9.6

3.2

1.7

2.4

0.9

1.8

1.3

1.6

1.4

1.8

1.0

1.31.0

1.30.8

1.20.9

1.9

0.2

0

2

4

6

8

10

12

14

16

USAGermany

ChinaThe Netherlands

UK ItalyFrance

Turkey

Belgium

Switzerland

Export

Import

14.8

4.9

3.3 3.1 3 2.82.3 2.1 2.1 2

Source: Central Bureau of Statistics

Additional data

28

Capital Raised by Israeli VC Funds* (M$)

317

643 638

1,438

2,587

1,317

393

6

585

1,460

473

0

500

1,000

1,500

2,000

2,500

3,000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

*In vintage year: Year of first closing or first investment.

Source: IVC – Israel Venture Capital Research Center

Additional data

29

Central Bank Interest Rates Israel vs. U.S.A

Source: Bank of Israel, Federal Reserve

Bank of Israel Rate

Federal Reserve Rate0%

1%

2%

3%

4%

5%

6%

Ja

n (1

)2 3 4 5 6 7 8 9 1

01

11

2J

an

(1)

2 3 4 5 6 7 8 9 10

11

12

Ja

n (1

)2 3 4 5 6 7 8 9 1

01

11

2J

an

(1)

2 3 4 5 6

Additional data

Currently:

3.5%

Currently:

5.25%

30

2004 2005 2006 2007

Nasdaq Index & Tel Aviv 100 (monthly average)

1000

1500

2000

2500

3000

3500

4000

200

300

400

500

600

700

800

900

1000

1100Nasdaq Index (left scale)

Tel Aviv 100 (right scale)

Source: Tel Aviv Stock Exchange (TASE) and the Ministry of Finance.

Additional data

31

Source: Credit Rating Agencies, Accountant General

Israel’s Credit Rating 1992-2007

0

1

2

3

4

5

6

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Moody's A2 Stable S&P A- Stable Fitch A- Stable

A1/A+

A2/A

A3/A-

Baa1/BBB+

Baa2/BBB

Baa3 /BBB-

Additional data

32

Source: World Economic Forum, Global Competitiveness Index, 2006

Global Competitiveness Index, 2006Israel Ranks 15 Out of 125 Countries (2005 Rank was 23)

5958

4847

3428

2421

1815

108

64

1

42

Additional data

33

Business Competitiveness Index, 2006 Israel Ranks 19 Out of 121 Countries (2005 Rank was 22)

6455

49

46

30

2725

2219

1612

85

21

36

Additional data

34Source: World Economic Forum, Global Competitiveness Index, 2006

Network Readiness score, 2006

Source: World Economic Forum, Global Information Technology Report 2006

Turkey

Greece

Italy

Spain

Portugal

France

Israel

Germany

Japan

Canada

United Kingdom

United States

Switzerland

Denmark 5.71) 1(

5.58) 5(

5.54) 7(

5.45) 9(

5.35) 11(

5.27) 14(

5.22) 16(

5.14) 18(

4.99) 23(4.48) 28(

4.35) 32(

4.19) 38(

3.98) 48(

3.86) 52(

Additional data

35

Dividend Distribute in the Past Years(NIS Millions)

2,559

6,196

222210178137106

19,747

14,609

11,917

54%

76%

79%

70%74%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

2002 2003 2004 2005 2006

30%

40%

50%

60%

70%

80%

90%

Amout of companies distributing dividend

Total dividend distributed (NIS Millions)

Distributing companies – % from total

Source: Tel Aviv Stock Exchange

Additional data

36

Israel and theOECD

Real GDP growth in 2006

Nominal GDP growth in 2006

Unemployment Rate in 2006

GDP per Capita in 2006

GDP Based on PPP per Capita in 2006

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Real GDP Growth in 2006 (Annual percentage of change, Partial list)

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

Source: OECD and the Ministry of Finance, Israel

Israel and the OECD

5.1%

3.17%

38

Nominal GDP Growth in 2006 (Annual percent of change, Partial list)

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Source: OECD and the Ministry of Finance, Israel

5.48%

7.51%

Israel and the OECD

39

Unemployment Rate 2006 (average)

0%

2%

4%

6%

8%

10%

12%

14%

16%

Source: OECD, and the Central Bureau of Statistics, Israel

6.0% 8.4%

Israel and the OECD

40

GDP per capita in 2006 ($US)

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

Source: IMF, Ministry of Finance

Countries that have been invited for open discussions for joining the OECD.

19,50018,610 12,203 8,864

6,856

Israel and the OECD

41

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

Source: IMF (Estimation)

Countries that have been invited for open discussions for joining the OECD.

GDP (based on purchasing-power-parity (PPP) ) per capita2006 ($US)

30,464 23,843 18,215 12,096

12,982

Israel and the OECD

42

InternationalTreaties

Israel’s Free Trade Agreements

Avoidance of Double Taxation Agreements

Cooperation in Industrial R&D Agreements

Protection of Investments Agreements

International Organization Memberships

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Israel’s Free Trade Agreements

USA (1985)

EFTA (1992)

Jordan (1995): Bilateral Trade Agreement

Canada (1997)

Turkey (1997)

Mexico (1999)

Romania (2000)

European Union – Association Agreement (2000)

Bulgaria (2002)

International Treaties

{Both Romania and

Bulgaria have recently joined the European

Union44

Avoidance of Double Taxation International Treaties

France

Germany

Greece

Hungary

India

Ireland

Italy

Jamaica

Japan

Latvia

Austria

Belarus

Belgium

Brazil

Bulgaria

Canada

China

Czech Republic

Denmark

Finland

Agreements

45

International Treaties

South Korea

Spain

Sweden

Switzerland

Thailand

The Netherlands

Turkey

Ukraine

United Kingdom

Uzbekistan

USA

Lithuania

Luxembourg

Mexico

Norway

Philippines

Poland

Romania

Russia

Singapore

Slovakia

South Africa

Avoidance of Double Taxation Agreements (con.)

46

Cooperation in Industrial R&D Agreements

Belgium

Canada

China

France

Hong Kong

Italy

Netherlands

Portugal

Spain

UK

USA

Singapore

Ireland

Sweden

Finland

Germany

IndiaAustria

Korea

International Treaties

47

Protection of Investment Agreements

International Treaties

Albania

Argentina

Armenia

Belarus

Bulgaria

Croatia

Cyprus

Czech Republic

El-Salvador

Estonia

Georgia

Germany

Hungary

India

Kazakhstan

Korea

48

Protection of Investment Agreements (con.) International Treaties

Turkmenistan

Ukraine

Uruguay

Uzbekistan

QIZ Agreement

Egypt

Jordan

Latvia

Lithuania

Moldova

Poland

Romania

Slovakia

Slovenia

Thailand

Turkey49

International Organization* Memberships:

BIS | BSEC (observer) | CE (observer)

CERN (observer) | EBRD | FAO | IADB | IAEA

IBRD | ICAO | ICC | ICCt (signatory) | ICFTU

IDA | IFAD | IFC | IFRCS (observer) | ILO | IMF

IMO | Interpol | IOC | IOM | ISO | ITU | OAS (observer)

OPCW (signatory) | OSCE (partner) | PCA | UN

UNCTAD | UNECE | UNEP | UNESCO | UNHCR

UNIDO | UPU | WB | WCO | WFP | WHO | WIPO | WMO

WToO | WTrO | WTO | MIGA | OECD (candidate)

* Economic Organizations

International Treaties

50

Relevant SitesGovernment Institutes:

Bank of Israel

BOI Annual Report (Complete in English)

Central Bureau of Statistics

Israeli Government Portal

Ministry of Finance

Israel Securities Authority

Ministry of Industry,Trade and Labor

Economic News:

“The Marker”

“Globes”

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We welcome your feedback:

Contact:

Uri Geva

International Affairs Department

Ministry of Finance, Jerusalem, Israel

urige@mof.gov.il

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