The Israeli Economy

From Economic Crisis to Stable Growth

M a y 2 0 1 9

Israel The Land of

(Economic) Miracles

Israel Economy | Past & Present

1984 2018

GDP per capita (US, current prices) 6,870 $ 41,180 $

Inflation Rate (Year End) 444% 1.1%

Current Account Balance

(% of GDP) -5.8% 2.0%

Budget Balance

(% of GDP) -15.3% -2.9%

Public Debt (% of GDP) 284% 60.5%

Net External Assets 18.8- B$ 126.6 B$

Source: EIU, CBS, Bank of Israel

World trade growth (%)

GDP Growth | Global Comparison

Source: OECD, Central Bureau of Statistics, BOI

5.0%

4.2%

5.7% 6.2%

3.0%

1.4%

5.7%

5.1%

2.2%

4.3% 3.9%

2.6%

4.0% 3.5% 3.3% 3.2%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019*

OECD World Israel

Israel’s growth rate has exceeded the average growth rate of advanced economies

Source: CBS, OECD

Av. growth rate, 2008-2018

One of the fastest-growing economies among all of OECD countries in the past decade

GDP Growth | Global Comparison

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

Av. GDP growth & GDP Per Capita

GDP Growth | Global Comparison

Source: EIU, OECD. Avg 2008-2018

Turkey

Ireland

Israel

Poland South Korea

Chile Australia

Slovakia

Mexico New Zealand

Sweden Canada

Czech Republic

U.S

Switzerland

Germany Norway Hungary

U.K Austria

Belgium Netherlands Estonia France Slovenia

Denmark Japan

Spain

Finland

Portugal Italy

Greece

OECD - Av.

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

- 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000

-18.0

-16.0

-14.0

-12.0

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

0.0

50.0

100.0

150.0

200.0

250.0

300.0

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

Bu

dg

et

ba

lan

ce

(%

GD

P)

- M

ovin

g

Ave

rag

e

Go

ve

rnm

en

t D

eb

t (%

GD

P)

Fiscal Policy Budget balance & Government Debt | % GDP

Source: Bank of Israel

Maastricht Criteria – Government Debt

Maastricht Criteria – Budget Balance

Monetary Policy Real Interest Rate* | 2019

Source: Bank of Israel

*Real Interest Rate = Nominal Interest Rate / Inflation Expectations

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

Jan

94

Sep

94

May

95

Jan

96

Sep

96

May

97

Jan

98

Sep

98

May

99

Jan

00

Sep

00

May

01

Jan

02

Sep

02

May

03

Jan

04

Sep

04

May

05

Jan

06

Sep

06

May

07

Jan

08

Sep

08

May

09

Jan

10

Sep

10

May

11

Jan

12

Sep

12

May

13

Jan

14

Sep

14

May

15

Jan

16

Sep

16

May

17

Jan

18

Sep

18

May

19

Source: World Bank (2014)

Trade Policy Av. Import Taxes

Ireland Japan Israel Rating Firm

A2 (Stable) A1 (Stable) A1 (Positive)

A+ (Stable) A+ (Stable) AA- (Stable)

A+ (Stable) A (Negative) A+ (Stable)

Israel’s Credit Ratings

Israel’s Highest-Ever Credit

Rating

For the last 30 years - Exports of goods and services has been a major growth

engine in the Israeli economy

Exports of goods and services | 1980-2018 (B$)

6 13

20

31 28 28 31 37 41 44

51 59

47 57

65 61 63 64 57 56 59 61

3

5

8

16 13 12

14

16 17

19

21

25

22

25

29 32

36 36

37 39 45

50

1980 1990 1995 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Services Goods

*2018 – IEI Economic Unit Forecast

Israel’s Innovation Innovation is the main growth engine of the Israeli export

Source: The Bloomberg Innovation Index 2019

The Bloomberg Innovation Index 2019 World Most Innovative Economies

Israel is 1st in the World in expenditure on R&D (research & development) as % of

GDP, demonstrating innovation, development and creativity.

Source: World Bank

Investment in R&D as % of GDP | 2010-2016 Av. | Leading Countries

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

Source: The Bloomberg Innovation Index 2019

The Bloomberg Innovation Index 2019

High Degree of Innovation The Global Competitiveness Index | 2018

Quality of scientific research institutions

University-industry collaboration in R&D

Company spending on R&D

In the past decade the industrial export was mainly affected by the rapid

growth of the Hi-Tech industry

Industrial Exports | by sector, 1995-2018

-

5

10

15

20

25

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

B$

High - technology industries Medium - high technology industries

Medium - low technology industries Low - technology industries

Low Tech Industries

7%

Hi-Tech Industries

49%

Med-Hi Tech Industries

30%

Med-Low Tech Industries

14%

22B$

3B$

6B$

14B$

Exports of Hi-tech products comprise about 50% of all Industrial Export

Industrial Exports | by sector, 2014-2018 Av.

In Hi-tech services export grew dramatically over the past years, and has

become the main growth engine for export in recent years

Export of Services | 2002-2018

8.9 9.4 11.1 12.4 12.7 14.2 16.5 14.0 16.9 15.6 16.0 18.5 18.9 18.6 18.0 20.2 21.4 3.2 4.1

4.8 5.0 6.3

7.0 8.3

8.3 8.2

13.6 15.8

16.4 16.9 18.3 21.5

24.5 28.7

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 *2018

Export of Hi-Tech Services Rest of Services

*2018 – IEI Economic Unit estimation

Export by regional trade, 2002-2018 | in billions of USD

10.9 10.0

5.8

15.5 12.3

6.1

10.3

5.3

2.7

0

5

10

15

20

25

30

35

40

2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002

Asia European Union USA

Export by regional trade | in % Share of total

32.5% 33.6%

21.6%

14.3%

23.0%

29.2%

2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002

European Union Asia USA

15%

10%

3%

6%

17% 4% 1%

30%

10% 4% Pharmaceutical products

Electronical components

Medical & Surgical equipment

Aircraft

Computing, Electronic & Optical equipment

Services for the Hi-tech Industry

Telecommunications Services

Computing services & Software

R&D Services (exc.start-up companies)

Exports of services from start-up companies

Source: IEICI Calculations & Estimations

Services

Industrial

High-tech Export totaled at 51.4B$ in 2018

46% of Israel’s Export

Hi-tech Sectors | Industrial & Services

Number of Technological Startups

5,000

3,000 2,500 2,500

TLV London Berlin Paris

Total VC Investments | 2013-2018

6-year consecutive growth!

During 2018 Israeli hi-tech

companies raised 6.5 B$

in 623 transactions 2.4

3.8

4.8 5.1

5.5

6.5

-

1

2

3

4

5

6

7

2013 2014 2015 2016 2017 2018

Bill

ion

s o

f U

SD

0.8 0.6 1.0

0.5 0.5

4.7 6.0

7.8

5.8

10.6

-

2

4

6

8

10

12

2014 2015 2016 2017 2018

Bill

ion

s o

f U

SD

Israeli Buy Side M&A Deal (M$)

Foreign Buy Side M&A Deal (M$) 2018 experienced a

significant increase in the

number of acquisitions of

Israeli targets by foreign

buyers compared to

previous years

Acquisitions of Israeli Companies | Foreign and domestic 2014-2018

Acquisitions of Israeli Companies | By country of origin 2014-2018

Number of Israeli High-Tech M&As | By Sector

More than 300 Multinational R&D centers In Israel

Tele-communications

New Media

Software

Electronics

Life Science Medical Dev.

Life Science Bio & Pharma

Israel’s Economy - Summary

Open Economy Export Oriented Growth High Skilled Human Resources Rapid Development of Technology & Hi-Tech Industries Entrepreneurial Culture (Start Up Nation)

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