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ECONOMIC HIGHLIGHTS 4 th QUARTER 2008 STATE OF ISRAEL MINISTRY OF FINANCE INTERNATIONAL AFFAIRS DEPARTMENT April 2009 International Affairs Department International Affairs Department Slide 2 Contents Note: You can return to the beginning of each chapter by clicking this symbols on the top of each slide. Economic Figures Economic Figures Balances International Comparisons International Comparisons Israel and the OECD Israel and the OECD International Treaties International Treaties Relevant Sites Relevant Sites Main Characteristics Main Characteristics 2008 Summary 2008 Summary Slide 3 Israels Economy: Highly Educated Population. Rapid Development of Technology & High-Tech Industries. Entrepreneurial Culture. Open Economy. High Trade intensity. Main Characteristics Slide 4 Economic Figures GDP and GDP per Capita Major GDP Components Growth: Israel compared to the World Exports of Goods and Services Exports of Goods by Region Foreign Investments Unemployment & Participation Rates Inflation Rate Growth of Main GDP Components 2008 Press for desired slide or continue: Back to Contents Main Indicators and Forecast 7-8 9 10 11 12 13 15 16 17 19 Main Trading Partners14 Inflation Rate Worldwide 18 2008 Summary5-6 Slide 5 2008 Summary Following five years of fast growth, in the second half of 2008 the economy reached a turning point, and the economy went into a recession as a result of the worsening global financial crisis and its increased effects on the local economy. In the first half of the year the economy continued the same trends that had typified the fast growth period: -High level of economic activity -Low rate of unemployment -Surplus of the current account -High savings rate -Reduction in the debt/GDP ratio -High profits in the business sector In the last quarter of the year the economy entered a recession: -Sharp decreases in exports and tax revenues -Reduction in private consumption -Labor market: employment expansion came to a halt, wages fell and unemployment began to rise Source: Bank of Israel, annual report 2008 5 Slide 6 2008 Summary (cont.) Inflation turnaround: Until September high, as a result of rising world oil and commodities prices and excess demand. After September dramatic decline as a result of falling world prices and a moderation of the excess demand With the worsening of the global crisis since September and the drop in inflation, the interest rate has been reduced dramatically to an unprecedented level in Israels history. The Bank of Israel has purchased considerable sums of foreign currency in order to increase the countrys reserves and as a measure to deal with the accelerated currency appreciation; In February 2009 the Bank of Israel began to purchase government bonds to ease credit conditions. The budget deficit grew and the decline in the debt/GDP ratio slowed as a result of the slowdown in activity and drops in the capital market, which affected tax revenues, and due to further tax reductions. Source: Bank of Israel, annual report 2008 6 Slide 7 *Using public exchange rate. ** In current prices Main Economic Indicators 20082007200620052004Criteria 199.4164.1144.0133.2125.8GDP (current prices in $B)* 4.0%5.4%5.2%5.1%5.0%GDP Real Growth Rate (%) $27,355$26,226$24,271 GDP per Capita (PPP adjusted)** 2.1%3.5%3.3% 3.2% GDP per Capita Growth Rate (%, Current prices) 80.4 (40.3%) 71.2 (43.4%) 62.6 (43.5%) 57.2 (43.0%) 52.0 (41.3%) Exports (Goods & Services)** $B* (As Percentage of GDP) 84.1 (42.2%) 74.0 (45.1%) 62.2 (43.2%) 57.5 (43.2%) 52.1 (41.4%) Imports (Goods & Services)** $B* (As Percentage of GDP) 6.1%7.3%8.4%9.0%10.4%Unemployment Rate (%) 7 Slide 8 20082007200620052004Criteria 78.3%*79.8%85.5%94.3%98.2%Total Gross Debt (Percentage of GDP) 43.5%44.2%45.0%45.5%47.6% Government Expenditure (Percentage of GDP) 0.8%2.6%5.0%3.2%2.4%Current Account Surplus (% of GDP) 3.8%3.4%-0.1%2.4%1.2%Inflation Rate ( CPI, end of year) Fitch: A (Stable) S&P: A (Stable) Moodys: A1 (Stable) Credit Rating ( Long-term Foreign Bonds ) About Credit Rating: The governments credit rating reflects the economys level of risk and affects banks, companies and financial bodies in the market. The rating creates a ceiling which acts as a benchmark to their bond pricing. Credit rating indicates the macro-economic status of an economy and affects foreign investors decisions whether to invest in the market. Source: Ministry of Finance, Central Bureau of Statistics Main Economic Indicators (con.) 8 * Estimate. Slide 9 GDP and Business GDP (Annual rate of change (%), in Constant Prices) 9 In the past few years, Israels economy has enjoyed high growth rates. In light of the world economic crisis, Israels growth has slowed down. * Estimate. Source: Ministry of Finance. Slide 10 GDP Growth Israel compared to Advanced Economies* (Annual rate of change (%), in constant prices) * Weighted average: US 39%, Euro area 46%, Japan 3%, UK 5%, Asian Newly Industrialized countries - 7% Source: Ministry of Finance. Since 2004, Israels growth rate has exceeded the average growth rate of advanced economies. 10 Slide 11 Major GDP Components (Annual rate of change (%), in constant prices) Source: Ministry of Finance 11 Private Consumption grew by 3.9%. Exports grew by 3.0%. Public Consumption grew by 2.8% in 2008. Slide 12 Source: Central Bureau of Statistics Exports of Goods and Services ( $B ) 12 In 2008, Exports grew by 3.0% Slide 13 Exports of Goods by Region (excluding Diamonds) Source: Central Bureau of Statistics 2008 2007 13 Slide 14 Israels Main Trading Partners (US$ Billions, excluding diamonds) Source: Central Bureau of Statistics 2008 14 EXPORT IMPORT 2007 China is becoming a leading trade partner for Israel Slide 15 Net Foreign Investments in Israel (B$) Source: Ministry of Finance 15 Slide 16 Unemployment and Participation (As % of Total Labor Force) Source: Central Bureau of Statistics The Acceleration program, announced by the Ministry of Finance, is a package of economic measures designed to accelerate activity in the Israeli economy, with emphasis on the labor market. 16 Slide 17 Inflation Rate (Rate of Change in CPI, end of year) Source: Central Bureau of Statistics, Ministry of Finance The Consumer Price Index (CPI) grew by 3.8% during 2008. 17 Slide 18 Inflation Rate Worldwide (Rate of Change in CPI, end of 2007) Inflationary pressures in Israel have decreased, as a result of the world crisis. 18 3.4% Sources: Central Bureau of Statistics, OECD Slide 19 Criteria + 4.0% Real GDP + 4.4% Business GDP + 3.0% Exports + 3.9% Private Consumption + 2.8% Public Consumption + 5.1% Investment in Fixed Assets Source: Ministry of Finance Growth of Main GDP Components 2008 2008 19 Slide 20 Balances Budget Deficit ; Current Account ; Net Foreign Debt General Government Expenditure Gross Public Debt Gross Tax Burden Back to Contents Press for desired slide or continue: 21 22 23 24 Slide 21 Gross Public Debt (as percentage of GDP) Source: Ministry of Finance Since 2003, the gross public debt has been on a downward trend. 21 Slide 22 Source: Ministry of Finance Budget Deficit and General Government Expenditure 22 Budget Deficit General Government Expenditure (% of GDP) Slide 23 Current Account Balance and Net Foreign Debt * As of 30/06/08, as percentage of 2007 GDP. Source: Ministry of Finance. In 2003, current account turned positive, conversely with the decrease of the net foreign debt. Current Account Surplus (% of GDP) Net Foreign Debt (% of GDP) 23 Slide 24 Source: Ministry of Finance, OECD*As of 2006 Gross Tax Burden (as % of GDP) Tax burden has been in the vicinity of OECD average since 2003 24 - - - OECD countries average: 33.2% * Slide 25 International comparisons and additional data Central Bank Interest Rates NASDAQ and Tel Aviv 100 Indices Israels Credit Rating Global Competitiveness Index Global Competitiveness Index: Selected Issues Business Competitiveness Index ; Network Readiness Index Press for desired slide or continue: Back to Contents 26 27 28 29 32 30 Slide 26 Central Bank Interest Rates Israel vs. U.S.A Source: Bank of Israel (BOI), Federal Reserve 2006 200720082009 Bank of Israel Rate (BOI) U.S. Federal Funds Rate 0.5% 0.0% 26 Coinciding with the FEDs low interest rate,BOI interest rate continues to decrease. Coinciding with the FEDs low interest rate, BOI interest rate continues to decrease. Slide 27 NASDAQ & Tel Aviv 100 (monthly average) Source: Tel Aviv Stock Exchange (TASE) and the Ministry of Finance. 27 Tel Aviv 100 reacts to the current events similarly to the NASDAQ, yet less drastically. Slide 28 Source: Credit Rating Agencies, Accountant General Israels Credit Rating 1992-2008 A1/A+ A2/A A3/A- Baa1/BBB+ Baa2/BBB Baa3 /BBB- 28 In January 2009, The Credit Rating Agencies Moody's and S&P Reconfirmed Israel's Credit Ratings Slide 29 Source: World Economic Forum, Global Competitiveness Index, 2008-9 Global Competitiveness Index, 2008-2009 Countries that have been invited for open discussions for joining the OECD. 29 22 67 61 51 49 32 29 28 24 23 16 9 6 2 1 42 Israel Ranks 23 rd out of 134 Countries Slide 30 Global Competitiveness Index, 2008/9 SELECTED CATEGORIES Venture Capital Availability Source: World Economic Forum, Global Competitiveness Index, 2008-9 Availability of Scientists & Engineers Quality of Scientific Research Institutions Company Spending on R&D RANK 30 Slide 31 Strength of Investor Protection Source: World Economic Forum; Global Competitiveness Index, 2008-9 Availability of Latest Technologies Utility Patents Legal Rights Index RANK Global Competitiveness Index, 2008/9 SELECTED CATEGORIES 31 (con.) Slide 32 Countries that have been invited for open discussions for joining the OECD Source: World Economic Forum; Global Competitiveness Index (GCI), 2006; Global Information Technology Report *NRI: Measures the level of ICT (Information and Communication Technologies) development of nations [LINK TO SITE][LINK TO SITE] **GCI: Provides a holistic overview of factors critical to productivity and competitiveness [LINK TO SITE][LINK TO SITE] The Networked Readiness Index 20082009 Business Competitiveness Index 2008-9 Israels Rank in Leading Indices 32 1 3 6 13 18 25 29 31 39 46 54 59 69 74 Slide 33 Israel and the OECD Real GDP growth in 2007-8 Unemployment Rate in 2007-8 Press for desired slide or continue: Back to Contents GDP Based on PPP per Capita in 2006 35 36 34 Slide 34 Real GDP Growth (Annual percentage of change, partial list) Source and projections: OECD and the Ministry of Finance, Israel 2.6% 1.4% 07 08 The global recession has influenced all of the OECD countries growth rates. 5.3% 07 4.1% 08 34 Slide 35 Unemployment Rate (average) Source: OECD, Ministry of Finance 35 08 07 08 07 08 07 08 07 Change 07-08 Slide 36 GDP per capita based on purchasing-power-parity (PPP) 2007, (in US$) 33,294 25,758 Source: Economics and Research Department calculations from OECD and the Central Bureau of Statistics data 36 Slide 37 International Treaties Israels Free Trade Agreements Avoidance of Double Taxation Agreements Cooperation in Industrial R&D Agreements Protection of Investments Agreements International Organization Memberships Press for desired slide or continue: Back to Contents 38-9 40 41-2 43 37 Slide 38 Israels Free Trade Agreements 37 * Member states of the common market of the south, not yet in force 1985 1992 1997 European Union (Association Agreement) USA EFTA Canada Turkey Mexico MERCOSUR* 1999 2000 2007 QIZ Agreement EgyptJordan Slide 39 Avoidance of Double Taxation Agreements AustriaBelarusBelgiumBrazilBulgariaCanadaChina Czech Republic CroatiaDenmark Estonia * EthiopiaFinlandFranceGermanyGreeceHungaryIndiaIrelandItalyJamaicaJapanLatviaLithuania * The agreement with Estonia has only been signed initially 38 Slide 40 (con.)SwitzerlandThailand The Netherlands TurkeyUkraine United Kingdom UzbekistanUSALuxembourgMexicoMoldovaNorwayPhilippines Portugal * PolandRomaniaRussiaSingaporeSlovakiaSlovenia South Africa** South Korea SpainSweden * The agreement with Portugal has been recently ratified ** Not yet ratified by South Africa. Avoidance of Double Taxation Agreements 39 Slide 41 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 40 Slide 42 Protection of Investment Agreements 41 CroatiaCyprus Czech Republic El-SalvadorEstoniaGeorgiaGermany AlbaniaArgentinaArmeniaAzerbaijanBelarusBulgariaChina GuatemalaIndiaKazakhstanKoreaLatvia Slide 43 TurkmenistanUkraineUruguayUzbekistan Protection of Investment Agreements (con.) 42LithuaniaMoldovaPolandRomaniaSlovakiaSlovenia South Africa ThailandTurkey Slide 44 International Organization* Memberships: BIS | BSEC (observer) | CE (observer) CERN (observer) | EBRD | FAO | IADB | IAEA WBG IBRD, IFC, IDA, MIGA | ICAO | ICC | ICCT (signatory) | ICFTU | IFAD | IFRCS (observer) | ILO | IMF IMO | Interpol | IOC | IOM | ISO | ITU | OAS (observer) | OECD (candidate)OPCW (signatory) OSCE (partner) | OECD (candidate) | OPCW (signatory) OSCE (partner) | PCA | UN | UNCTAD | UNECE | UNEP | UNESCO | UNHCR UNIDO | UPU | WCO | WFP | WHO | WIPO | WMO | WTOO WTRO | WTO | ICSID * Economic Organizations 43 Slide 45 Relevant Sites Back to Contents Government Institutions: Ministry of Finance OECD Stat Profile on Israel Bank of IsraelBank of Israel (BOI) Central Bureau of Statistics Israeli Government Portal Israel Securities Authority Ministry of Industry, Trade and Labor OECD Israel WWW.FINANCEISRAEL.MOF.GOV.IL International Affairs Department Homepage: Slide 46 We welcome your feedback! Contact: Ms. Ravit Friedberg International Affairs Department Ministry of Finance, Jerusalem, Israel FinanceIsrael@mof.gov.il Start Again Click here for our website! www.FINANCEISRAEL.mof.gov.il