israel's economy november 2010

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

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44

S ound Monetary PolicyS ound Monetary Policy55

Responsible Fiscal PolicyResponsible Fiscal Policy

Business InnovationBusiness Innovation11

Global ReputationGlobal Reputation22


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4

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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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

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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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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

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Global ReputationGlobal Reputation


22

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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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Business InnovationBusiness Innovation


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S teady GrowthS teady Growth11

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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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Business InnovationBusiness Innovation


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S teady GrowthS teady Growth11


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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Quality in Everything WeDo

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