Economic Highlights Presentation4th Quarter 2011

STATE OF ISRAELMINISTRY OF FINANCEInternational Affairs Department

In any case of information derived from sources external to the Ministry of Finance, such sources are mentioned at the bottom of each item

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Table of Contents

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7

5

Balances

International Comparisons

Main Economic Indicators

Israel in the OECD

Learn More

Contact

International Agreements

Table of Contents

Main Economic Indicators

GDP and Business GDP

Major GDP Components

Exports of Goods and Services

Foreign Investments

Unemployment and Participation

Consumer Price Index

Inflation Rate

Economic Figures

Main Trading Partners

Israel’s Credit Ratings

Gross Domestic Capital Formation

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4

Economic Figures

* Using a public exchange rate of 1USD=3.7NIS (2010 average) ** Estimated

Criteria 2009 2010 2010 Q4 2011 Q1 2011 Q2 2011 Q3

GDP(constant prices, 2005, in $B)*

189.9 199.0 50.9 51.5 51.9 52.4

Real GDP growth rate(% change)

0.8% 4.8% 7.2% 4.7% 3.5% 3.4%

GDP per capita, based on PPP(Current international $)

28,526$ 29,901$ -- -- -- --

GDP per capita growth rate (%, 2005 prices)

-0.9% 2.9% 8.6% 5.2% 2.6% 5.3%

Exports (goods & services), $B*(As % of GDP)

75.139.5%

85.342.9%

22.143.4%

22.543.7%

22.643.5%

21.541.0%

Imports (goods & services), $B*(As % of GDP)

71.037.4%

80.040.2%

20.740.7%

21.942.5%

22.443.2%

22.042.0%

Unemployment rate 7.6% 6.6% 6.5% 6.0% 5.5% 5.6%

Additional Sources: IMF

5

Economic Figures

Criteria 2005 2006 2007 2008 2009 2010         

Public debt(As % of GDP)

93.8% 84.3% 77.8% 77.1% 79.3% 76.3%

         General government expenditure (As % of GDP)

45.3% 44.7% 43.6% 43.0% 43.0% 42.6%

         Current account surplus(As % of GDP)

3.1% 5.1% 2.9% 0.9% 3.6% 2.9%

         Inflation rate(CPI, yearly average, % change)

1.4% 2.1% 0.5% 4.6% 3.3% 2.7%

 Budget deficit(As % of GDP)

1.8% 0.9% 0.0% 2.2% 5.2% 3.7%

6

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2010

Q4

2011

Q1

2011

Q2

2011

Q3

-3%

-1%

1%

3%

5%

7%

9%

11%

-0.3%

-0.6%

1.5%

4.8% 4.9%

5.6% 5.5%

4.0%

0.8%

4.8%

7.2%

4.7%

3.5% 3.4%

-1.2%-1.0%

2.3%

6.1%

6.8% 6.8%

6.1%

4.5%

0.4%

5.8%

8.6%

5.2%

2.6%

5.3%

GDP Business GDP

GDP and Business GDPAnnual rate of change, constant prices, 2005

In 2010, Israel has recovered from the global economic crisis, and is back to previous years’ growth rates. In the 3rd quarter of 2011, business GDP recovered sharply.

7

Major GDP ComponentsAnnual rate of change, constant prices, 2005

2006

2007

2008

2009

2010

-15%

-10%

-5%

0%

5%

10%

15%

20%

4.2%

6.3%

2.8%1.4% 1.4%

3.0% 3.3%2.1% 2.2% 2.2%

13.1%14.5%

4.4%

-5.8%

13.7%

5.5%

9.2%

6.6%

-12.5%

13.6%

Private Consumption

Public Consumption

Investment in Fixed Assets

Exports of Goods and Services

Global economic crisis

8

Exports of Goods and ServicesUS $ Billions, constant prices, 2005

2003

2004

2005

2006

2007

2008

2009

2010

0

10

20

30

40

50

60

70

80

90

30.1936.66 39.77 43.32

50.2957.71

46.3356.09

13.39

16.0317.45

19.27

21.13

24.09

21.98

24.23

Services Goods

* Using a public exchange rate of 1USD=3.7NIS (2010 average)

Global economic crisis

9

Main Trading PartnersUS $ Billions, 2010

USA

China

*

Belgium

& Lux

embo

urg

India UK

Nethe

rland

s

Germ

any

Turk

ey

Fran

ceIta

ly0

2

4

6

8

10

12

14

16

18

2018.5

6.0

3.1 2.92.3 1.8 1.7 1.3 1.3 1.3

Exports

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

Additional Sources: Central Bureau of Statistics

USA

China

*

Germ

any

Switz

erland

Italy UK

Nethe

rland

sIn

dia

Turk

ey

Japa

n0

1

2

3

4

5

6

7

8

6.76.1

3.73.2

2.4 2.2 2.1 1.8 1.8 1.8

Imports

10

Main Trading PartnersUS $ Billions, 2010

Additional Sources: Central Bureau of Statistics

2007 2008 2009 20100.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

19.2

21.9

15.4

18.9

9.612.0

9.3

12.9

19.921.2 17.6 19.6

Exports

EuropeAsiaNorth Amer-ica

2007 2008 2009 20100.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

26.829.7

22.9

26.5

11.713.2

9.8

13.0

8.3 8.76.3 7.3

Imports

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Gross Domestic Capital Formation

16%

17%

18%

19%

20%

21%

19.2%

18.0%

17.6%

18.9%

19.3%

20.3%

19.6%

17.9%18.1%

As % of GDP

12

Foreign InvestmentsUS $ Billions

2002

2003

2004

2005

2006

*20

0720

0820

0920

100

5

10

15

20

25

4.94.3

9.58.3

19.4

14.4

10.8 10.7

17.6

1.6

3.32.4

4.3

15.3

8.8

10.9

4.45.2

Total Investments Direct Investments

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

13

Unemployment and ParticipationAs % of total labor force

Q4 2009 Q1

Q2 Q3 Q4 2010 Q1

Q2 Q3 Q4 2011 Q1

Q2 Q34%

5%

6%

7%

8%

9%

54%

55%

56%

57%

58%

59%

6.4%

7.5%

7.9%

7.6%

7.2%

6.9%

6.5% 6.6%6.5%

6.0%

5.5% 5.6%

56.8%57.0%

56.8% 56.8% 56.8% 56.7%

57.2%

57.7% 57.7%57.5% 57.5% 57.4%

Unemployment Rate

Participation in the Labor Force

Since the 2nd quarter of 2009 unemployment is relatively decreasing, hand in hand with a relative increase in participation rate since the 1st quarter of 2010.

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Consumer Price IndexLast 24 monthly averages, 2010=100

95

96

97

98

99

100

101

102

103

104

105

99.199.1

98.598.298.3

99.299.5

99.8100.3

100.8101.0101.3101.4

101.8102.0102.3102.5

103.1103.6

104.0104.1104.0104.2103.7

104.0

Additional Sources: Central Bureau of Statistics

15

Inflation RateRate of change in consumer price index, yearly average

2003

2004

2005

2006

2007

2008

2009

2010

-1%

0%

1%

2%

3%

4%

5%

0.7%

-0.4%

1.4%

2.1%

0.5%

4.6%

3.3%

2.7%

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Israel’s Credit RatingsOverseas Bonds

ForecastDomestic Bonds

Term Rating FirmRating Rating

A1Stable

A1 LongMoody's

P1 - Short

A+Stable

AA- Long Standard & Poor'sA-1 A-1+ Short

AStable

A+ LongFitch

F1 - Short

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Table of Contents

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Balances

International Comparisons

Main Economic Indicators

Israel in the OECD

Learn More

Contact

International Agreements

18

International Comparisons

Budget Deficit

Current Account Surplus

General Government Expenditure

Net Foreign Surplus

Gross Public Debt

Gross Tax Burden

19

Gross Public DebtAs % of GDP

70%

75%

80%

85%

90%

95%

100%

105%

99.1%

97.4%

93.8%

84.3%

77.8%77.1%

79.3%

76.3%

Since 2003, gross public debt has been on a consistent downward trend, only interrupted by the extraordinary circumstances surrounding the 2009 global economic crisis.

Global economic crisis

20

Budget DeficitAs % of GDP

0%

1%

2%

3%

4%

5%

6%

5.2%

3.5%

1.8%

0.9%

0.0%

2.2%

5.2%

3.7%

21

-50,000

-40,000

-30,000

-20,000

-10,000

0

-16,061

-3,626

-6,721

-3,657

-16,161

1,071

-6,371-4,862

-39,286

-30,165

-44,355-42,924

Quarterly Budget Execution Yealy Budget Execution

Budget DeficitTarget and execution in NIS million, current prices

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. The proven effectiveness and functionality of the biennial budget have led the government to adopt the biennial budget for a second period through 2011-2012.

22

General Government ExpenditureAs % of GDP

38%

39%

40%

41%

42%

43%

44%

45%

46%

47%

48%

49%

50%

51%50.1%

47.3%

45.3%

44.7%

43.6%

43.0% 43.0%42.6%

23

Current Account SurplusAs % of GDP

0%

1%

2%

3%

4%

5%

6%

1.2%

2.3%

3.1%

5.1%

2.9%

0.9%

3.6%

2.9%

24

Net Foreign SurplusAs % of GDP

0%

5%

10%

15%

20%

25%

30%

1.7%

4.5%

10.9%

14.7%

22.5% 22.6%

26.3% 26.6%

* Using a public exchange rate of 1USD=3.7NIS (2010 average)

25

Gross Tax BurdenAs % of GDP

30%

31%

32%

33%

34%

35%

36%

37%

35.5% 35.5% 35.6%35.9%

36.2%

33.8%

31.4%

32.4%

Additional Sources: OECD

OECD countries average: 34.8%(2008 average)

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Table of Contents

6

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5

Balances

International Comparisons

Main Economic Indicators

Israel in the OECD

Learn More

Contact

International Agreements

27

International Comparisons

Inflation Rates

Israel on WEF Rankings

Israel on IMD Rankings

Interest Rates: Israel & the U.S.

GDP Growth

Stock Indices: NASDAQ & Tel-Aviv 100

28

GDP GrowthIsrael compared to advanced economies, annual rate of change, constant prices

2004

2005

2006

2007

2008

2009

2010

-4%

-2%

0%

2%

4%

6%

8%

4.8% 4.9%

5.6% 5.5%

4.0%

0.8%

4.8%

3.1%2.7%

3.1%2.8%

0.1%

-3.7%

3.1%

Israel Advanced Economies

Additional Sources: IMF

Since 2004, Israel’s growth rate has exceeded the average growth rate of advanced economies.

In 2009, as most of the world experienced a decline in GDP, Israel experienced a 0.8% growth in it’s GDP.

29

Inflation RatesRate of change in consumer price index, yearly average

Additional Sources: IMF

Israe

l

Advan

ced

Econ

omies

Finland

Germ

any

Ireland

Japa

n

Norway

Portu

gal

Switz

erland

Unite

d St

ates

-2%

-1%

0%

1%

2%

3%

4%

3.3%

0.1%

1.6%

0.2%

-1.7%

-1.4%

2.2%

-0.9%

-0.5%-0.3%

2.7%

1.6%1.7%

1.2%

-1.6%

-0.7%

2.4%

1.4%

0.7%

1.6%

2009 (dark) 2010 (bright)

The Israeli economy demonstrated high stability compared to other countries throughout the global economic crisis.

The Institute for Management Development

ranked Israel 17th out of 59 countries for

2011 (Israel was also ranked 17th in 2010)

Israel on IMD RankingsIMD World Competitiveness Yearbook 2011

Additional Sources: IMD World Competitiveness Yearbook 201130

Information technology skills Central bank policy

EntrepreneurshipFlexible and adaptability

Israel on IMD RankingsIMD World Competitiveness Yearbook 2011

Additional Sources: IMD World Competitiveness Yearbook 201131

Total expenditure on R&D (as % of GDP) Scientific research

Innovative capacityVenture capital

Israel on IMD RankingsIMD World Competitiveness Yearbook 2011

Additional Sources: IMD World Competitiveness Yearbook 201132

Israel on WEF RankingsWorld Economic Forum Global Competitiveness Index 2011-2012

Additional Sources: World Economic Forum Global Competitiveness Index 2011-2012

The World Economic Forum ranked Israel

22nd out of 142 countries for 2011-2012

33

Quality of scientific research institutions Venture capital availability

Strength of investor protectionUtility patents per million population

Israel on WEF RankingsWorld Economic Forum Global Competitiveness Index 2011-2012

Additional Sources: World Economic Forum Global Competitiveness Index 2011-201234

Government procurement of advanced technology products

Capacity for innovation

University-industry collaboration in R&D Firm-level technology absorption

Israel on WEF RankingsWorld Economic Forum Global Competitiveness Index 2011-2012

Additional Sources: World Economic Forum Global Competitiveness Index 2011-201235

36

Interest Rates: Israel & the U.S.

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

1.25%

1.50%

1.75%

2.00%

2.50%

3.00%

3.25%

3.00%

2.75%

Bank of Israel

=0

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%.

37

Stock Indices: NASDAQ & Tel-Aviv 100

500

600

700

800

900

1,000

1,100

1,200

1,300

1,400

1,500

2,000

2,100

2,200

2,300

2,400

2,500

2,600

2,700

2,800

2,900

3,000

Tel Aviv 100 NASDAQ

Tel Aviv 100 corresponds with the NASDAQ to current events, with relatively stable reactions.

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Table of Contents

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Balances

International Comparisons

Main Economic Indicators

Israel in the OECD

Learn More

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International Agreements

39

Israel in the OECD

Real GDP Growth

Unemployment

GDP per Capita

Expenditure on R&D

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

40

Expenditure on R&DAs % of GDP, 2010 or latest available year

Additional Sources: OECD

0%

1%

2%

3%

4%

5%

6%

4.25%

2.33%

Israel is 1st in the OECD in expenditure on R&D (research & development) as % of GDP, demonstrating innovation, development and creativity.

41

Real GDP Growth3-year average, end of period

Additional Sources: OECD

Esto

nia

Icelan

dIta

ly

Finland

Japa

n

Slov

enia

Fran

ce

Norway

Nethe

rland

s

Germ

any

Austri

a

Czech

 Rep

ublic

Russia

n Fe

dera

tion

Luxe

mbo

urg

Switz

erland

Sout

h Afri

ca

Austra

lia

Kore

a

Poland

Indo

nesia

China

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

11%

-0.10%

3.19%

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

42

GDP per CapitaU.S $, Current prices, PPP, 2010

Additional Sources: OECD

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

28,510

34,025

43

Unemployment Rate3-year average 2008-2010, or latest available period

Additional Sources: OECD

0%

5%

10%

15%

20%

25%

7.1%7.7%

Israel’s unemployment rate is in an ongoing downtrend, reaching an historic low level of 5.5% in Q2 2011.

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Table of Contents

6

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Balances

International Comparisons

Main Economic Indicators

Israel in the OECD

Learn More

Contact

International Agreements

45

International Agreements

Avoidance of Double Taxation

Bilateral Investment Treaties

Cooperation in Industrial R&D

Israel’s Free Trade Agreements

Economic Organizations

46

Israel’s Free Trade Agreements

QIZ Agreements1985

1992

1997

1997

1999

2000

2007

USA

EFTA

Turkey

Canada

Mexico

European Union (Association Agreement)

MERCOSUR

2004

1998

Egypt

Jordan

More extended information is available in the Israel Ministry of Finance website

47

Avoidance of Double Taxation

More extended information is available in the Israel Ministry of Finance website

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

Luxembourg

Mexico

48

Avoidance of Double Taxation

More extended information is available in the Israel Ministry of Finance website

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

Malta

Panama

49

Cooperation in Industrial R&D

More extended information is available in the Israel Ministry of Finance website

North America New YorkMassachusettsMarylandVirginiaWisconsinColoradoIllinoisOregonBIRD (Foundation)Ontario CIIRDF (Foundation)

South America ArgentinaUruguayBrazil

Australia(Victoria)

Europe FranceRussia (Rusano, Skolkovo)ItalyGermanyGreeceCzech RepublicBulgariaLithuania SloveniaDenmarkHungaryTurkeyPortugalFinlandSwedenIreland

* Through EUREKA (40 country Multilateral Initiative)

Asia China( Shanghai, Jiangsu, Most)IndiaTaiwan

SIIRD-Singapore (Foundation)KORIL-RDF-Korea (Foundation)

50

Bilateral Investment Treaties

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

More extended information is available in the Israel Ministry of Finance website

51

Bilateral Investment Treaties

South Africa

Thailand

Turkey

Turkmenistan

Ukraine

Uzbekistan

Slovakia

Slovenia

Serbia

Mongolia

Poland

Romania

Montenegro

Peru

Vietnam

More extended information is available in the Israel Ministry of Finance website

52

Economic OrganizationsMembership in main international economic organizations

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

More extended information is available in the Israel Ministry of Finance website

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Table of Contents

6

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5

Balances

International Comparisons

Main Economic Indicators

Israel in the OECD

Learn More

Contact

International Agreements

54

Learn More

Visit the Israel Ministry of Finance

English website for more information:

Economic Overview of Israel

Other publications and reports on the Israeli economy

Ministry of Finance publications and reports

About the Ministry

Ministry press releases

55

Learn More

Bank of Israel

Ministry of Foreign Affairs

Ministry of Industry, Trade and Labor

Israel Central Bureau of Statistics

Israel Government Portal

Click to open:

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Balances

International Comparisons

Main Economic Indicators

Israel in the OECD

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International Agreements

57

Contact

 Mr. Roni HershkovitzMr. Assaf LuxembourgMr. Jonah Balakhaneh

Overseas Economic InformationInternational Affairs DepartmentMinistry of FinanceState of Israel

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