irmc2016 - keynote speech karnit flug - governor of bank of israel - the israeli economy: current...
TRANSCRIPT
The Israeli Economy: Current Trends, Strength and Challenges
IRMC Conference
Dr. Karnit Flug
Governor of the Bank of Israel
13.06.2016
1
-4
-2
0
2
4
6
8
10
GDP Growth Rates
GDP annual % change (2000-2017F)
2 Source: IMF
Forecast
Israel
Advanced Economies
Developing Economies
*Simple average for 21 rich OECD countries and emerging markets according to IMF definition
GDP per capita Growth Rates
GDP per capita annual % change (2000-2015)
3 Source : IMF
Israel
Developing Economies
Advanced Economies
*Simple average for 21 rich OECD countries and emerging markets according to IMF definition
-6
-4
-2
0
2
4
6
8
Source : Bol and IMF
4
0
20
40
60
80
100
120
140
World Trade
*Excl. diamonds and start-ups
Index 2008=100
Israeli Exports
Israel’s Goods and Services Exports and World Trade, 1996-2017F
Forecast
-4
-2
0
2
4
6
8
10
2007 2008 2009 2010 2011 2012 2013 2014 2015
%
Public consumption
Private consumption
Exports (excl. diamonds )
Investment
Total increase in uses
The increase in uses: The total increase and the contribution of uses
2007-2015
Source: BoI Report 2015, CBS
Structural Change in the Composition of Growth –Private Consumption is Leading While Exports are in Stagnation
5
6
4.5
79.6
76.0
64
66
68
70
72
74
76
78
80
82
4
5
6
7
8
9
10
11
12
13
Participation Rate
Employment rate
Unemployment rate
Labor Market Quarterly, 1995-2016, 25-64
% %
Source : Central Bureau of Statistics Labor Force Survey
Real Wage per Employee Post* 1995-2015
NIS
*Seasonally adjusted, 12 months moving average, 2015 prices
Source : Central Bureau of Statistics Data
7,500
8,000
8,500
9,000
9,500
10,000
Total Public Sector Business Sector
7
Bank of Israel Policy
BOI’s Policy Objectives
Maintain price stability, as the central goal.
Support economic policy, primarily growth, employment and reducing social gaps.
Support the stability and orderly activity of the financial system.
9
1.4
-0.9
-4
-2
0
2
4
6
8
* Forward inflation expectations 3-5 years
%
Inflation 12 month
Expectations Forward*
Actual Inflation and Inflation Expectations 2006-2016
10 Source: Bol
Inflation excluding energy and regulation
0.4
0.6
-0.9
-2
-1
0
1
2
3
4
5
6
09
/13
10
/13
11
/13
12
/13
01
/14
02
/14
03
/14
04
/14
05
/14
06
/14
07
/14
08
/14
09
/14
10
/14
11
/14
12
/14
01
/15
02
/15
03
/15
04
/15
05
/15
06
/15
07
/15
08
/15
09
/15
10
/15
11
/15
12
/15
01
/16
02
/16
03
/16
04
/16
Inflation excluding energy, food, fruit and vegetables, and without regulation
Source : CBS (Israel) & BoI
Annual inflation
Factors of a One-Off Nature and Energy Prices Contribute to the Low Inflation
11
%
-60
-50
-40
-30
-20
-10
0
10
20
30
40
09/1
3 1
1/1
3 0
1/1
4 0
3/1
4 0
5/1
4 0
7/1
4 0
9/1
4 1
1/1
4 0
1/1
5 0
3/1
5 0
5/1
5 0
7/1
5 0
9/1
5 1
1/1
5 0
1/1
6 0
3/1
6 0
5/1
6
CommoditiesExcl. Energy
Brent Crude OilPrice
Energy and Commodity Prices Declined
*12-month % change
70
75
80
85
90
95
100
105
110
3.2
3.4
3.6
3.8
4.0
4.2
4.4
4.6
4.8
5.0
5.2
01
/12
03
/12
05
/12
07
/12
09
/12
11
/12
01
/13
03
/13
05
/13
07
/13
09
/13
11
/13
01
/14
03
/14
05
/14
07
/14
09
/14
11
/14
01
/15
03
/15
05
/15
07
/15
09
/15
11
/15
01
/16
03
/16
05
/16
NIS/$
/€ NIS
Exchange Rates 2012-2016
NIS Index
Nominal Effective
12 Source : BoI
40
60
80
100
120
140
160
180
200
220
01/0
5 0
6/0
5 1
1/0
5 0
4/0
6 0
9/0
6 0
2/0
7 0
7/0
7 1
2/0
7 0
5/0
8 1
0/0
8 0
3/0
9 0
8/0
9 0
1/1
0 0
6/1
0 1
1/1
0 0
4/1
1 0
9/1
1 0
2/1
2 0
7/1
2 1
2/1
2 0
5/1
3 1
0/1
3 0
3/1
4 0
8/1
4 0
1/1
5 0
6/1
5 1
1/1
5
Loans for residential purposes
Survey of home prices
Index
Survey of Home Price and Loans for Residential Purposes 2005-2016, Monthly
Source : Bank of Israel, Banking Supervision Department 13
Bank of Israel Policy Tools 2007-2016
0.1 0
1
2
3
4
5
01/0
7 0
6/0
7 1
1/0
7 0
4/0
8 0
9/0
8 0
2/0
9 0
7/0
9 1
2/0
9 0
5/1
0 1
0/1
0 0
3/1
1 0
8/1
1 0
1/1
2 0
6/1
2 1
1/1
2 0
4/1
3 0
9/1
3 0
2/1
4 0
7/1
4 1
2/1
4 0
5/1
5 1
0/1
5 0
3/1
6
FX Intervention
(US$)
Interest Rate (%)
01/0009/1305/2701/4110/5406/6802/8210/9507/0903/23
01/0
7 0
6/0
7 1
1/0
7 0
4/0
8 0
9/0
8 0
2/0
9 0
7/0
9 1
2/0
9 0
5/1
0 1
0/1
0 0
3/1
1 0
8/1
1 0
1/1
2 0
6/1
2 1
1/1
2 0
4/1
3 0
9/1
3 0
2/1
4 0
7/1
4 1
2/1
4 0
5/1
5 1
0/1
5 0
3/1
6
Additional provision
for high LTV loans
Higher capital
requirements for
high LTV
Variable Interest
Rate limit
LTV limit
PTI limit and
capital requirem
ent
Higher capital
requirements for high LTV
Bond purchases 5 Billion $
Higher capital
requirements
Macroprudential
Measures
14
Natural Gas Purchase program + Intervention
Building reserves Intervention
“The Monetary Committee assesses that monetary policy
will remain accommodative for a considerable time”
0
500
1,000
1,500
2,000
2,500
3,000
01/0
7 0
6/0
7 1
1/0
7 0
4/0
8 0
9/0
8 0
2/0
9 0
7/0
9 1
2/0
9 0
5/1
0 1
0/1
0 0
3/1
1 0
8/1
1 0
1/1
2 0
6/1
2 1
1/1
2 0
4/1
3 0
9/1
3 0
2/1
4 0
7/1
4 1
2/1
4 0
5/1
5 1
0/1
5 0
3/1
6
Source : Bol
Fiscal Policy
Budget Deficit* and Deficit Target (Percent of GDP, 2000-2016)
%
*Percent of GDP; excluding credit extended. The data refers to the deficit excluding the Bank of Israel’s profits.
Source : Bol 16
2.9 2.9
0
1
2
3
4
5
6
7
Source : The Bol and the OECD. 17
40
50
60
70
80
90
100
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
%
Public Debt - Israel
Public Debt - OECD*
1.6
3.0
-4.0
-2.0
0.0
2.0
4.0
No
rway
Luxem
bo
urg
Eston
iaSw
ede
nK
ore
aSw
itzerland
Finlan
dD
en
mark
New
Zealand
Can
ada
Au
straliaC
zech
…Jap
anN
etherlan
ds
Germ
any
Po
land
OEC
DSlo
vak…Fran
ceA
ustria
Un
ited
…B
elgiu
mU
nite
d State
sSp
ainIsraelSlo
venia
Irelan
dIce
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Hu
ngary
Gree
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ortu
gal
General government net debt interest payments Per cent of nominal GDP 2015
Public Debt in Israel is Decreasing but Net Interest Payments are Still High in International Comparison
0
5
10
15
20
25
30
35
40
45
50
Direct
Indirect
%
30.7
34.4
Source : OECD Revenue Statistics 2015
Tax Burden 2014, Percent of GDP
18
*2013 data
%
Public Expenditure Percent of GDP, 2014
38.7
45.2
15
20
25
30
35
40
45
50
55
60
19 Source : OECD
30.7
42.2
15
20
25
30
35
40
45
50
55
60
Source :OECD and the Bol
• The data is calculated by decreasing the net debt interest payments and defense expenditure from the general government total outlays
%
Civilian Public Expenditure Excluding Interest Percent of GDP, 2014
20
Behind the Engine of Growth - Strengths
33.5
48.5
0
10
20
30
40
50
60
Share of the Population Aged 25-64 with Tertiary-Level Education , 2014
%
Source : OECD Education at a Glance 2015 22
Israel is Leading in International Innovation Rankings
Source: World Economic Forum 2015 &Bloomberg 23
Factors in Israel that encourage innovation Quality universities that provide the economy with human
capital, scientific aptitude, and technological abilities Collaboration between the universities and industry Government support for commercial R&D Developed venture capital industry
Ranking 3 5
Index
• 73 Israeli companies are listed on Nasdaq
• Over 300 international companies established Israeli R&D centers
• More than 4,000 startups : The world’s greatest concentration of
high tech companies outside Silicon Valley
• Leading in cyber security: 430 cyber security companies and
startups. In 2015, Israel’s share of private investment in the field was
nearly 20% (second only to the US).
Source: IMF WEO April 2014, Israel innovation authority, Nasdaq, The National Cyber Bureau 24
Israel’s Relative Advantages - Technology
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
25
Triadic patent families Number per million inhabitants, 2013
Source: OECD Factbook 2015-2016
125 148
Israel’s Relative Advantages – Water Innovation
• World leader in desalination; With a network of five coastal
desalination plants, which together produce 75% of all water
supply to households.
• Leading in Waste-Water Recycling with a rate of 80%.
• Israel developed and patented the “Drip Irrigation”, that has not
only produced huge reduction in agricultural water use, but has also
vastly increased yields, and it is used worldwide.
26 Source: The Israel water authority , “Natafim”, “Mekorot”.
0.00%
0.05%
0.10%
0.15%
0.20%
0.25%
0.30%
0.35%
0.40%
0.45%
Isra
el
Un
ited
Sta
tes
Can
ada
Swed
en
Ko
rea
Fin
lan
d
OEC
D
Irel
and
Jap
an
Un
ited
Kin
gdo
m
Swit
zerl
and
No
rway
Hu
nga
ry
Fran
ce
Po
rtu
gal
Be
lgiu
m
Net
her
lan
ds
Den
mar
k
New
Zea
lan
d
Ger
man
y
Esto
nia
Au
stri
a
Au
stra
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Spai
n
Slo
ven
ia
Slo
vak
Rep
ub
lic
Cze
ch R
epu
blic
Po
lan
d
Ital
y
Gre
ece
Later stage venture Seed/start-up/early stage
Venture Capital Investment as % of GDP, 2014
Source : OECD 27
28
Agriculture, forestry and fishing
Food products, beverages and tobacco
Textiles, leather and footwear
Wood and products of wood and cork
Pulp, paper, paper products, printing and
publishing
Rubber and plastics products
non-metallic mineral products
Basic metals and fabricated metal products
Machinery and equipment
Electrical & optical equipment
Transport equipment
Electricity gas and water supply
Construction
Wholesale and retail trade
Hotels and restaurants
Transport, storage and communications
Financial intermediation
Real estate, renting and business activities
Chemicals
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9
Productivity Ratio
Exports as share of the industry’s output
Productivity Gap—Israel vs. OECD Average, and Exports’ Share of Output in Israel, by Industry, 2010
Source : Eurostat, OECD, BoI, CBS (Israel)
Long Term Challenges
$
Source : The Conference Board Total Economy Database 2015
Output Per Hour Worked 1995-2015,$ PPP, 2015 Constant Prices
30
0.000
10.000
20.000
30.000
40.000
50.000
60.000
70.000
Israel
OECD
21 Rich Countries
31
Agriculture, forestry and fishing
Food products, beverages and tobacco
Textiles, leather and footwear
Wood and products of wood and cork
Pulp, paper, paper products, printing and
publishing
Rubber and plastics products
non-metallic mineral products
Basic metals and fabricated metal products
Machinery and equipment
Electrical & optical equipment
Transport equipment
Construction
Wholesale and retail trade
Hotels and restaurants
Transport, storage and communications
Financial intermediation
Real estate, renting and business activities
Chemicals
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9
Productivity Ratio
Exports as share of the industry’s output
Productivity Gap—Israel vs. OECD Average, and Exports’ Share of Output in Israel, by Industry, 2010
Source : Eurostat, OECD, BOI, CBS (Israel)
0
10
20
30
40
50
60
70
80
90
100
Jewish Non-Ultraorthodox Women
Ultraorthodox Women
Arab Women
OECD Women
32
%
Source : Based on Central Bureau of Statistics Data
Women Employment Rate, 25-64
10
20
30
40
50
60
70
80
90
100
Jewish Non-Ultraorthodox Men
Ultraorthodox Men
Arab Men
OECD Men
% Men Employment Rate, 25-64
Employment Rate by Population Groups
0
0.1
0.2
0.3
0.4
0.5
0.6
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Swit
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Icel
and
Net
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Po
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ece
Irel
and
Gini Index, 2012*, at disposable income, post taxes and transfers
Source : Based on Central Bureau of Statistics Data and OECD 33
Strength of the effect of tax policy and transfer payments on
the Gini Index, 2012
0
0.1
0.2
0.3
0.4
0.5
0.6
Den
mar
kSl
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k R
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Slo
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ort
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lG
ree
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rael
Un
ited
Sta
tes
Turk
eyIs
rael
Gini Index, 2012*, at market income, before taxes and transfers
Economic Income Inequality is Similar to the OECD Average, but the Effect of Policy, Particularly Transfer Payments, is Low in International Comparison.
0.0
0.1
0.2
0.3
0.4
0.5
Swit
zerl
and
Isra
elU
nit
ed S
tate
sN
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Au
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eth
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DP
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Slo
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Contribution of tax system
Contribution of transfer payments
*Israel data for 2014
34
Integrate population sectors into the labor market: Active labor market policy
• Ultra-Orthodox (men)
• Arab (women)
• Older workers (around retirement age)
Increase human capital: Education and professional training
Remove obstacles to growth and productivity
• Infrastructure
• Business environment
• Competitiveness
• Promote reforms (ports, electricity, and the natural gas and energy industry)
• Research and development
Increasing quality and efficiency of public service systems (health, long-term care, welfare, pension, etc.)
Diversify trade geographically and by industry
The Need to Formulate a Focused Strategic Plan:
Thank You