STATE OF ISRAEL MINISTRY OF FINANCE

International Affairs Department

ECONOMIC HIGHLIGHTS July 2011, 2nd Quarter 2011

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Contents

Economic Figures

Balances

International Comparisons

Israel and the OECD

International Agreements

Relevant Sites

Note:

You can return to the beginning

of each chapter by clicking the

emblem of Israel on the top of

each slide.

Contact Us

Economic Figures

GDP and Business GDP

Major GDP Components

Growth: Israel compared to the World

Exports of Goods and Services

Foreign Investments

Unemployment & Participation Rates

Inflation Rate

Growth of Main GDP Components 2008

Main Economic Indicators

Main Trading Partners

Inflation Rate Worldwide

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*Current Prices, using a public exchange rate of 1$ = 3.46 NIS

** Estimated

Main Economic Indicators

2011

Q1

2010

Q4

2010

Q3

2010

Q2 2010 2009 Criteria

55.1 54.5 53.5 52.9 213.1 203.6 GDP

(current prices in $B)*

4.7% 7.6% 4.8% 5.5% 4.7% 0.8% Real GDP Growth Rate

(%)

-- -- -- -- 29,531$ 28,581$ GDP per Capita

(PPP adjusted)*

2.7% 5.4% 2.8% 3.7% 2.8% -1.1% GDP per Capita Growth Rate

(%, 2005 prices)

24.6

(44.6%)

23.7

(43.5%)

23.1

(43.1%)

23.0

(43.5%)

91.3

(42.9%)

80.4

(39.5%)

Exports (Goods & Services) $B*

(As Percentage of GDP)

22.9

(41.5%)

21.1

(40.5%)

21.3

(39.7%)

21.3

(40.2%)

85.6

(40.1%)

76.0

(37.3%)

Imports (Goods & Services) $B*

(As Percentage of GDP)

6.0% 6.5% 6.5% 6.5% 6.6% 7.6% Unemployment Rate

(%)

Source: Ministry of Finance, IMF

CONTINUE

Source: Ministry of Finance

2010 2009 2008 2007 Criteria

76.4% 79.3% 77.1% 77.8% Total Gross Debt

(% of GDP)

42.7% 43.0% 43.0% 43.6% Government Expenditure

(Percentage of GDP)

2.9% 3.6% 0.8% 2.9% Current Account Surplus

(% of GDP)

2.7% 3.3% 4.6% 0.5% Inflation Rate

(CPI, yearly average)

CONTINUE

Main Economic Indicators

Source: Ministry of Finance

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

Main Economic Indicators

CONTINUE

All 3 rating firms have reaffirmed Israel’s rating, without any downgrade,

Since the global economic crisis in 2009.

4.7%

7.6%

4.8%5.5%

5.7%5.4%

4.2%

0.8%

4.6%

5.8%

8.7%

6.7%

5.1%5.4%

0.2%

4.7%

6.0%

7.0%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

2006 2007 2008 2009 2010 2010 Q2 2010 Q3 2010 Q4 2011 Q1

GDP Business GDP

GDP and Business GDP

Annual rate of change, constant prices

In 2010, Israel has recovered from the global In the 4th quarter of 2010, Israel

economic crisis, and is back to previous years’ experienced exceptional growth rates

growth rates

Source: Ministry of Finance.

CONTINUE

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

3.1%

2.7%

3.0%2.7%

0.2%

-3.4%

2.7%

0.8%

4.7%

4.2%

5.4%

5.7%

4.9%5.0%

-3.5%

-2.5%

-1.5%

-0.5%

0.5%

1.6%

2.6%

3.6%

4.6%

5.6%

2004 2005 2006 2007 2008 2009 2010

Advanced Economies Israel Growth

Source: Ministry of Finance, IMF

Since 2004, Israel’s growth rate has exceeded the average growth rate

of advanced economies.

CONTINUE

In 2009, as most of the world experienced a decline in GDP,

Israel experienced a 0.8% growth in it’s GDP

4.3%

6.3%

3.0%

1.4% 1.4%

3.1% 3.1%2.1% 2.2% 2.2%

13.6%14.6%

4.1%

-5.8%

12.6%

5.9%

9.3%

5.9%

-12.5%

13.6%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

2006 2007 2008 2009 2010

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

Major GDP Components

Annual rate of change, in constant prices

Source: Ministry of Finance

CONTINUE

In 2010, Investment in Fixed Assets and Export of Goods and

Services recovered sharply, after they were contracted severely in

2009 due to the economic crisis.

Global Economic Crisis

Source: Ministry of Finance

Exports of Goods and Services US $ Billions, current prices

55.7

13.4

16.0

17.4

19.3

21.1

24.1

22.0

24.7

45.957.2

36.7

30.2

39.843.3

50.3

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

2003 2004 2005 2006 2007 2008 2009 2010

Services

Goods

CONTINUE

Global

Economic

Crisis

Israel’s Main Trading Partners

2010, US $ Billions

Source: Central Bureau of Statistics

18.5

6.0

3.1 2.92.3 1.8 1.7 1.3 1.3 1.3

0

2

4

6

8

10

12

14

16

18

20

Exports

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

6.76.1

3.73.2

2.4 2.2 2.11.8 1.8 1.8

0

1

2

3

4

5

6

7

Imports

Israel’s Main Trading Partners

US $ Billions

Source: Central Bureau of Statistics

26.8

29.7

22.9

26.4

11.913.7

10.0

13.3

8.3 8.7

6.37.3

0

5

10

15

20

25

30

CONTINUE

Imports

Exports

19.2

21.9

15.4

18.9

9.8

12.2

9.5

13.8

19.921.2

17.6

19.6

0

5

10

15

20

25

30

Europe

Asia

North America

Net Foreign Investments in Israel US $ Billion

1.6

3.3

2.4

4.3

15.3

8.8

10.9

4.4

5.24.94.3

9.5

8.3

19.4

14.4

10.7 10.7

17.6

0

5

10

15

20

25

2002 2003 2004 2005 2006* 2007 2008 2009 2010

Direct Investments

Total Investments

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

Source: Ministry of Finance

CONTINUE

Global Economic

Crisis

Unemployment and Participation As % of total labor force

7.9%

7.6%

7.2%6.9%

6.5%

6.6%

6.5%

6.0%

56.8%

56.8%56.8%

56.7%57.1%

57.7%57.7%

57.4%

54.5%

55.0%

55.5%

56.0%

56.5%

57.0%

57.5%

58.0%

58.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

Q2 Q3 Q4 2010 Q1 Q2 Q3 Q4 2011 Q1

Unemployment Rate

Participation in the Labor Force

Source: Ministry of Finance

CONTINUE

Since the 2nd quarter of 2009 unemployment is decreasing,

hand in hand with an increase in participation rate since the 1st quarter of 2010.

Inflation Rate

Rate of change in CPI, yearly average, 2008=100

Source: Central Bureau of Statistics, Ministry of Finance

0.7%

-0.4%

1.4%

2.1%

0.5%

4.6%

3.3%

2.7%

-1%

0%

1%

2%

3%

4%

5%

2003 2004 2005 2006 2007 2008 2009 2010

CONTINUE

Inflation Rate

Rate of change in CPI, 12 months average, 2008=100

Source: Central Bureau of Statistics, Ministry of Finance

99.5

99.8

100.3

100.8101.0

101.3 101.4

101.8102.0

102.3102.5

103.1

97

98

99

100

101

102

103

104

May 2010 Jun 2010 Jul 2010 Aug 2010 Sep 2010 Oct 2010 Nov 2010 Dec 2010 Jan 2011 Feb 2011 Mar 2011 Apr 2011

CONTINUE

Inflation Rate Worldwide

Annual rate of change in CPI

Sources: Ministry of Finance, IMF

CONTINUE

3.3%

-1.4%

-0.9%

2.2%

1.6%

-1.7%

0.2%0.0%

2.7%

0.7%

1.4%

2.4%

1.6% 1.7%

-1.6%

1.2%

2.3%

-0.5% -0.3%-0.7%

-3%

-1%

1%

3%

Isra

el

Japa

n

Switz

erland

Por

tuga

l

Norw

ay

USA

Finland

Ireland

Ger

man

y

Belgium

2009 (left column)

2010 (right column)

The Israeli economy demonstrated a high level of stability

compared to other countries throughout the global economic crisis

Q1 2011 Criteria

+ 4.7% Real GDP

+ 5.8% Business GDP

+ 16.0% Exports

+ 6.8% Private Consumption

+ -5.7% Public Consumption

+ 23.7 % Investment in Fixed Assets

Source: Ministry of Finance

Growth of Main GDP Components for Previous Quarter

NEXT CHAPTER: BALANCES BACK TO CONTENTS

Balances

Budget Deficit – Target and Execution

Gross Public Debt

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Budget Deficit and General Government Expenditure

Gross Tax Burden

Current Account and Net Foreign Debt

Gross Public Debt

As % of GDP

Source: Ministry of Finance

76.4%

79.3%

99.1%

97.4%

93.8%

84.3%

77.8%77.1%

75%

80%

85%

90%

95%

100%

105%

2003 2004 2005 2006 2007 2008 2009 2010

Since 2003, gross public debt has been on a consistent downward trend, only interrupted by the

extraordinary circumstances surrounding the 2009 global economic crisis

CONTINUE

Global

Economic

Crisis

Budget Deficit – Target and Execution in NIS million, current prices

Source: Ministry of Finance

-13,501

-4,452

-16,061

-39,286

-3433

-6523

-3579

-15396

-28931

-1980

-44,355-42924

-45500

-40500

-35500

-30500

-25500

-20500

-15500

-10500

-5500

-500

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

CONTINUE

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.

Quarterly Budget Execution

Yearly Budget Execution

Yearly Budget Target

Source: Ministry of Finance

Budget Deficit and General Government Expenditure

45.3%

44.7%

43.6%

43.0% 43.0%

42.7%

41%

42%

43%

44%

45%

46%

2 5 2 6 2 7 2 8 2 9 2 1

General Government Expenditure

(% of GDP) 1.8%

0.9%

0.0%

2.2%

5.2%

3.7%

0%

1%

2%

3%

4%

5%

6%

2 5 2 6 2 7 2 8 2 9 2 1

CONTINUE

Budget Deficit

(% of GDP)

Current Account Balance and Net Foreign Debt

Source: Ministry of Finance.

1.2%

2.3%

3.1%

5.1%

2.9%

0.8%

3.6%

2.90%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

2003 2004 2005 2006 2007 2008 2009 2010

Since 2003, the current account balance is positive, and is accompanied by a decrease of net foreign debt

Current Account Surplus (% of GDP)

Net Foreign Surplus*

(% of GDP)

1.6%

24.9%24.7%

21.1%21.0%

13.7%

10.2%

4.2%

0%

5%

10%

15%

20%

25%

30%

2003 2004 2005 2006 2007 2008 2009 2010

CONTINUE *Current Prices, using a public exchange rate of 1$ = 3.46 NIS

Source: Ministry of Finance, OECD

Gross Tax Burden as % of GDP

35.4% 35.5%35.9%

36.3%

33.8%

31.4%

32.5%

28%

30%

32%

34%

36%

38%

2 4 2 5 2 6 2 7 2 8 2 9 2 1

OECD countries average: 34.8% (2008 average)

NEXT CHAPTER: INTERNATIONAL COMPARISONS BACK TO CONTENTS

International Comparisons

NASDAQ and Tel-Aviv 100 (monthly average)

WEF Global Competitive Index

Central Bank Interest Rates: Israel and U.S.A

BACK TO CONTENTS

IMD World Competitiveness Yearbook

IMD World Competitiveness

Yearbook 2011

CONTINUE

Israel was also ranked 17th in IMD World Competitiveness

Yearbook 2011.

Read about it Here

Source: International Institute for Management and Development (IMD), World Competitiveness Yearbook 201

IMD World Competitiveness

Yearbook 2010

The Institute for Management

Development ranked Israel

17th

out of 58 countries for 2010 (Israel was ranked 24th in 2009)

CONTINUE

Source: International Institute for Management and Development (IMD), World Competitiveness Yearbook 201

IMD World Competitiveness

Yearbook 2010

CONTINUE

Resilience of the economy Central bank policy

Entrepreneurship Financial skills

Source: International Institute for Management and Development (IMD), World Competitiveness Yearbook 201

IMD World Competitiveness

Yearbook 2010

CONTINUE

Venture capital Total expenditure on R&D

Skilled labor Scientific research

Source: World Economic Forum, Global Competitiveness Index, 2010-2011

The World Economic Forum

ranked Israel

24th

out of 139 countries

for 2010-2011

CONTINUE

WEF Global Competitiveness

Index 2010-2011

Source: World Economic Forum, Global Competitiveness Index, 2010-2011

CONTINUE

Quality of scientific research institutions Utility patents per million population

Availability of latest technologies Strength of investor protection

WEF Global Competitiveness

Index 2010-2011

Source: World Economic Forum, Global Competitiveness Index, 2010-2011

Legal rights index Capacity for innovation

Firm-level technology absorption Nature of competitive advantage

CONTINUE

WEF Global Competitiveness

Index 2009-2010

1.00%

0.50%

0.75%

1.25%

1.50%

1.75%

2.00%

2.50%

3.00%

3.25%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

Central Bank Interest Rates: Israel and U.S.A

Source: Bank of Israel (BOI), Federal Reserve

Bank of Israel Rate (BOI)

U.S. Federal Funds Rate (FED) = 0%

CONTINUE

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%

NASDAQ & Tel Aviv 100 monthly average

1,000.00

1,500.00

2,000.00

2,500.00

3,000.00

3,500.00

4,000.00

10 11 12

Jan 20

072 3 4 5 6 7 8 9 10 11 12

Jan 20

082 3 4 5 6 7 8 9 10 11 12

Jan 20

092 3 4 5 6 7 8 9 10 11 12

Jan 20

102 3 4 5 6 7 8 9 10 11 12

Jan 20

112 3 4 5 6

300.00

400.00

500.00

600.00

700.00

800.00

900.00

1000.00

1100.00

1200.00

1300.00

Nasdaq (left scale)

Tel Aviv 100 (right scale)

Source: Ministry of Finance

Tel Aviv 100 corresponds with the

NASDAQ to current events

NEXT CHAPTER: ISRAEL AND THE OECD BACK TO CONTENTS

Israel and the OECD

Unemployment

GDP per Capita

Real GDP Growth

Expenditure on R&D

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

joined in September 10th, 2010.

BACK TO CONTENTS

Source: OECD

CONTINUE

2.28%

4.27%

0%

1%

1%

2%

2%

3%

3%

4%

4%

5%Israel is ranked 1st of all OECD countries by expenditure on R&D (research & development)

as a percentage of GDP (4.27 %), demonstrating innovation, development and creativity.

Expenditure on R&D As % of GDP, 2008, or latest available year

Real GDP Growth

3-year average at end of period

Source: OECD

CONTINUE

2.13%

4.83%

0%

2%

4%

6%

8%

10%

12%Israel’s 3-year average growth rate is higher then most OECD members.

For Israel’s year-on-year graph, see slide no.7

GDP per capita Current prices and PPP’s, 2009

Source: OECD

CONTINUE

27,661

33,082

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

For Israel’s adjusted PPP GDP Per Capita, see slide no.4

Although no comparable data for 2010 exists, it is reasonable to assume a diminishing

gap between Israel and the OECD average

Source: Ministry of Finance, OECD

6.00

7.27

0

2

4

6

8

10

12

Israel’s unemployment rate is in an ongoing downtrend, reaching an historic low

level of 5.8% in April 2011. During the last global economic crisis, Israel

experienced a relatively mild increase in unemployment rates.

For Israel’s unemployment, see

NEXT CHAPTER: INTERNATIONAL AGREEMENTS BACK TO CONTENTS

Unemployment Rate

Average 2006-2008, or latest available period

slide no.14

International Agreements

Avoidance of Double Taxation Agreements

Bilateral Investment Treaties

Cooperation in Industrial R&D Agreements

International Organization Memberships

Israel’s Free Trade Agreements

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QIZ Agreements

Egypt (2004)

Jordan (1998)

Israel’s Free Trade Agreements

1985

1992

1997

1997

1999

2000

2007

USA

EFTA

Turkey

Canada

Mexico

European Union (Association Agreement)

MERCOSUR (Argentina not yet in force)

CONTINUE

Source: Ministry of Finance

Avoidance of Double Taxation Agreements

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

CONTINUE

Source: Ministry of Finance

Avoidance of Double Taxation Agreements

CONTINUE

Source: Ministry of Finance

Luxembourg

Mexico

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

Cooperation in Industrial R&D Agreements

CONTINUE

Source: Ministry of Finance

Austria

Belgium

Canada

China

Finland

France

Germany

Hong Kong

Sweden

United kingdom

U.S.A

India

Ireland

Italy

Korea

Netherlands

Portugal

Singapore

Spain

Victoria (Australia)

Czech Republic

Bilateral Investment Treaties

CONTINUE

Source: Ministry of Finance

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

* See comments in the Bilateral Investments Treaties page in our website

Bilateral Investment Treaties

CONTINUE

Source: Ministry of Finance

South Africa*

Thailand

Turkey

Turkmenistan

Ukraine*

Uzbekistan

Slovakia

Slovenia*

Serbia

Mongolia

Poland

Romania*

Montenegro

Peru*

Vietnam*

* See comments in the Bilateral Investments Treaties page in our website

Main International Economic Organizations Membership:

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

NEXT CHAPTER: RELEVANT SITES BACK TO CONTENTS

Source: Ministry of Finance

Relevant Sites

BACK TO CONTENTS

Ministry of Finance

Bank of Israel

Central Bureau of Statistics

Israeli Government Portal

Israel Securities Authority

Ministry of Industry, Trade and Labor

CONTACT US

Ministry of Foreign Affairs

WE WELCOME YOUR FEEDBACK Mr. Roni Hershkovitz

Director

Overseas Economic Information

International Affairs Department

Ministry of Finance

Jerusalem

Israel

Mr. Assaf Luxembourg

Overseas Economic Information

International Affairs Department

Ministry of Finance

Jerusalem

Israel

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