Economic Highlights Presentation

2nd Quarter 2013 ( As of July 1th)

STATE OF ISRAEL

MINISTRY OF FINANCE

Chief Economist Department – Research, State Revenue & International Affairs

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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Foreign Trade and Balance of Payments

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Price Stability and Monetary Policy

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9 Contact

3

Economic Figures

*Using a periodic average exchange rate. ** For available months

Criteria 2011 2012 2012 Q2 2012 Q3 2012 Q4 2013Q1 2013Q2

GDP (Current prices in $B)*

243.9 240.9 60.5 59.8 60.8 63.8 -

Real GDP growth rate (% change)

4.6% 3.2% 2.6% 2.8% 2.6% 2.7% -

GDP per capita (Current $)

31,419$ 30,476$ 7,685$ 7,547$ 7,643$ 7,893$ -

GDP per capita growth rate (%, 2005 prices)

2.7% 1.3% 0.9% 0.9% 0.5% 0.9% -

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

91.0 37.3%

90.1 37.4%

24.0 39.6%

21.9 36.7%

22.4 36.7%

22.5 35.2%

-

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

92.2 37.8%

92.7 38.5%

23.7 39.1%

23.0 38.4%

21.7 35.6%

21.5 33.6%

-

Unemployment rate** 7.1% 6.9% 6.9% 6.8% 6.8% 6.6% 6.9%

Sources: CBS, IMF

4

Economic Figures

Criteria 2007 2008 2009 2010 2011 2012

Public debt (As % of GDP)

78.6% 77.4% 79.6% 76.3% 74.0% 73.2%

General government expenditure (As % of GDP)

45.2% 44.3% 44.5% 43.8% 43.4% 43.4%

Current account surplus (As % of GDP)

3.2% 1.4% 4.1% 3.3% 1.3% 0.4%

Inflation rate (CPI, yearly average, % change)

0.5% 4.6% 3.3% 2.7% 3.5% 1.7%

Budget deficit (As % of GDP)

0.0% 2.2% 5.1% 3.7% 3.3% 4.2%

* MoF Estimates

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4.1%

1.1%

5.0% 4.6%

3.2% 2.9%

2.6% 2.8%

2.6% 2.7%

4.4%

0.5%

5.4% 5.1%

3.3% 3.2% 2.9% 2.9%

3.5%

2.2%

-3%

-1%

1%

3%

5%

7%

9%

11%

GDP Business GDP

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

7

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

Source: CBS, OECD Stat

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 1.1% growth in it’s GDP.

1.5%

4.9% 4.9% 5.8% 5.9%

4.1%

1.1%

5.0% 4.6%

3.1% 3.8%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013*

OECD Euro Area U.S Israel

* MoF forecast, Euro stat and OECD forecast

8

GDP Components Real Annual Percentage Change

1.6% 1.9%

5.3%

3.8% 2.7% 2.4% 2.6% 2.9% 2.9%

3.4% 4.6%

-3.1%

12.2%

16.0%

4.0%

7.1%

-12.3%

13.5%

5.5%

0.1%

-15%

-10%

-5%

0%

5%

10%

15%

20%

Private Consumption

Public Consumption

Investment in Fixed Assets

Exports of Goods and Services

Effects of the global economic crisis

9

GDP per Capita $ U.S, Current prices, Current PPP, 2012

Additional Sources: OECD

35.0

28.0

0

10

20

30

40

50

60

70

80

90

100

10

Output Gap As percentage of Potential GDP, 2012

Additional Sources: OECD Estimates

1.4%

-2.9%

-16%

-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

Isra

el

Pola

nd

Slo

vak R

epublic

Chile

Canada

Norw

ay

Mexic

o

Fin

land

Germ

any

Sw

eden

Est

onia

Kore

a

Aust

ralia

Sw

itze

rland

Belg

ium

Luxem

bourg

Turk

ey

Japan

United K

ingdom

New

Zeala

nd

Aust

ria

Cze

ch R

epublic

OECD

Neth

erlands

Fra

nce

Slo

venia

Denm

ark

United S

tate

s

Euro

are

a

Hungary

Italy

Icela

nd

Port

ugal

Irela

nd

Spain

Gre

ece

The actual - potential GDP Difference. Positive index means that actual output is higher than potential.

11

2.1%

12.7% 12.6%

-1.3%

5.4%

-13.2%

4.9%

8.2%

10.0%

-0.5%

8.7%

-3.6%

-15%

-10%

-5%

0%

5%

10%

15%

TA100 NASDAQ S&P 500 EuroStoxx 50 FTSE EEM

2013*

2013Q2

Stock Exchange Indices Percentage Change, end of period relative to end of previous period

Additional Sources: TASE, Bloomberg

* The change since the beginning of 2013 till the end of the specified quarter.

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30.2% 30.2% 30.5% 28.6%

24.0% 25.9% 26.3% 25.5%

12.6% 12.6% 12.2% 11.9%

11.0% 11.3% 11.0% 11.9%

0%

10%

20%

30%

40%

50%

2005 2006 2007 2008 2009 2010 2011 2012

Services

Goods

13

Exports of Goods and Services As a share of GDP

Effects of the global economic crisis

14

Main Trading Partners $ US Billions, 2012

19.3

8.0

3.7 3.3 3.0 2.1 2.0 1.8 1.5 1.3

0

5

10

15

20

25Exports

* The data on trade with Hong-Kong is added to the data regarding China

Source: Central Bureau of Statistics

8.7

7.3

4.5 4.6 4

3 2.8 2.7 2.4

2.1

0

1

2

3

4

5

6

7

8

9

10 Imports

15

Main Export Destinations As a share of total exports

Source: Central Bureau of Statistics

32.1% 32.3% 34.7% 34.0% 37.9%

19.9% 23.6%

24.3% 25.2% 24.6%

36.8% 33.5% 30.4% 29.8%

27.8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2009 2010 2011 2012 2013*

North America Asia Europe

* Relates to January-April 2013

16

Current Account Surplus As % of GDP

1.2%

2.3%

3.1%

4.8%

3.2%

1.4%

4.1%

3.3%

1.3%

0.4%

0%

1%

2%

3%

4%

5%

6%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Source: Central Bureau of Statistics

17

Foreign Investments $ US Billions

4.3

10.4

7.9

27.1

14.4

10.8 10.8

18.2

7.0

2.3 3.3 2.9

4.8

15.3

8.8

10.9

4.4 5.5

10.8 9.5

0.0

5.0

10.0

15.0

20.0

25.0

30.0

2003 2004 2005 2006* 2007 2008 2009 2010 2011 2012

Total Investments Direct Investments

* In 2006, a large acquisition by Teva Pharmaceutical Industries Ltd. was included in the data.

Source: Central Bureau of Statistics

14.4%

13.4%

7.8%

7.5%

7.4%

6.9%

5.7%

3.2%

3.2%

1.3%

-1.5%

-2.5%

JPY

AUD

BRL

RUB

KRW

GBP

CAD

TWD

CHF

EUR

CNY

ILS

18

Exchange Rates 30 June 2013 vs 31 December 2012

Source: Pacific Exchange Rate Service

The change in the specified currency relative to the $ US

A decrease means an appreciation of the specified currency relative to the $ US

19

90

95

100

105

110

115

Mar-

09

May-0

9

Jul-09

Sep-0

9

Nov-0

9

Jan-1

0

Mar-

10

May-1

0

Jul-10

Sep-1

0

Nov-1

0

Jan-1

1

Mar-

11

May-1

1

Jul-11

Sep-1

1

Nov-1

1

Jan-1

2

Mar-

12

May-1

2

Jul-12

Sep-1

2

Nov-1

2

Jan-1

3

Mar-

13

Terms of Trade = Export Prices to Import Prices Ratio

Source: Central Bureau of Statistics

Terms of Trade 2005 average = 100

20

Israel’s Free Trade Agreements

QIZ Agreements 1985

1993

1997

1997

2000

2000

2007

USA

EFTA

Turkey

Canada

Mexico

European Union (Association Agreement)

MERCOSUR

2004

1998

Egypt

Jordan

More comprehensive information is available on the Israel Ministry of Finance website

21

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*

Korea

Moldova

*Comprehensive information is available on the Israel Ministry of Finance website

Macedonia*

22

Bilateral Investment Treaties

*Comprehensive information is available on the Israel Ministry of Finance website

South Africa*

Thailand

Slovakia

Slovenia*

Serbia

Poland

Romania

Montenegro

Turkey

Turkmenistan

Ukraine*

Uzbekistan

Uruguay

23

Economic Organizations Membership in main international economic organizations

Israel is a member of leading international economic organizations:

• United Nations Organizations

• United Nations Agencies

• World Bank Group

• International Monetary Fund

• OECD

• Regional Organizations

• Inter-Governmental Organizations

More comprehensive information is available on the Israel Ministry of Finance website

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Foreign Trade and Balance of Payments

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Unemployment and Participation As % of total labor force

9.1% 8.7%

8.3% 8.3%

8.1%

7.6%

7.0% 7.0% 6.8% 6.9% 6.9%

6.8% 6.8%

6.6%

6.9%

62.0% 61.9%

62.4%

62.9%

62.9% 62.7%

62.7%

62.7%

62.6% 62.8%

63.6%

64.1%

63.7% 63.7%

63.7%

60%

61%

62%

63%

64%

65%

5%

6%

7%

8%

9%

10%

2009Q4

2010Q1

Q2 Q3 Q4 2011Q1

Q2 Q3 Q4 2012Q1

Q2 Q3 Q4 2013Q1

Q2*

Unemployment Rate

Participation in the Labor Force

Source: Central Bureau of Statistics

Since the 2nd quarter of 2009 unemployment is relatively decreasing, with a gradual increase in the participation rate since the beginning of 2010.

*Available data.

26

Unemployment Rate Latest available data

Additional Sources: OECD

8.0%

6.9%

0%

5%

10%

15%

20%

25%

27

143.9

-5.9

20.9

49.3

75.9

99.8

85.9

116.5

101.8

69.1

104.5

92.9

107.7

55.5

-20

0

20

40

60

80

100

120

140

160

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013*

Effects of the global economic crisis

Job Creation Change in the number of employees

Annual average relative to previous year average.

* April to May average.

Source: Central Bureau of Statistics

59.6% 55.2%

0%

10%

20%

30%

40%

50%

60%

70%

80%

28

Employment Rate 15+, latest available quarterly data

Additional Sources: OECD, Euro Stat

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30

General Government Expenditure As % of GDP

48.5%

46.6%

46.1%

45.2%

44.3% 44.5%

43.8%

43.4% 43.4%

40%

41%

42%

43%

44%

45%

46%

47%

48%

49%

Source: Central Bureau of Statistics

31

General Government Tax Burden As % of GDP

35.6% 35.8%

36.1%

36.5%

33.9%

31.5%

32.6% 32.8%

31.7%

30%

31%

32%

33%

34%

35%

36%

37%

OECD countries average: 33.8% (2011 average)

Source: Central Bureau of Statistics, OECD

32

General and Central Budget Deficit As % of GDP

3.5%

1.8%

0.9%

0.0%

2.2%

5.2%

3.7%

3.3%

4.2%

4.2%

2.6%

1.2%

0.6%

2.6%

5.6%

3.7%

3.3%

4.5%

0%

1%

2%

3%

4%

5%

6%

Central Government

General Government

33

Public Debt As % of GDP

93.9%

85.1%

78.6% 77.4%

79.6%

76.3%

74.0% 73.2%

70%

75%

80%

85%

90%

95%

100%

Effects of the global economic crisis

34

Public Debt As % of GDP, international comparison

-20%

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

200%

220%

240%

Japan

Gre

ece

Italy

Port

ugal

Icela

nd

Irela

nd

United S

tate

s

OECD

United K

ingdom

Fra

nce

Belg

ium

Euro

are

a

Spain

Germ

any

Hungary

Canada

Aust

ria

Neth

erlands

Isra

el

Pola

nd

Fin

land

Denm

ark

Slo

venia

Slo

vak R

epublic

New

Zeala

nd

Cze

ch R

epublic

Sw

eden

Norw

ay

Sw

itze

rland

Kore

a

Luxem

bourg

Aust

ralia

Est

onia

2007 Debt to GDP Ratio Change from 2007 to 2012

Israel: 78.2% (2007) 73.2% (2012)

OECD average: 74.2% (2007) 108.7% (2012)

Source: OECD

35

Israel’s Credit Ratings

Overseas Bonds Forecast

Domestic Bonds Term Rating Firm

Rating Rating

A1 Stable

A1 Long Moody's

P1 - Short

A+ Stable

A+ Long Standard & Poor's

A-1 A-1+ Short

A Stable

A+ Long Fitch

F1 - Short

Updated to mid-September, 2012

1996 1998 2000 2002 2004 2006 2008 2010 2012

Moody's

S&P

Fitch

A1/A+

A2/A

A3/A-

Baa1/BBB+

Aa3/AA-

Nov 2007 S&P upgrades

Israel To A

April 2008 Moody’s upgrades

Israel To A1

Sep 2011 S&P upgrades Israel To A+

Feb 2008 Fitch upgrades

Israel To A

36

Avoidance of Double Taxation

More comprehensive information is available on the Israel Ministry of Finance website

Austria

Belarus

Belgium

Brazil

Bulgaria

Canada

China

Croatia

Czech Republic

Denmark

Estonia

Ethiopia

Finland

France

Germany

Greece

Hungary

India

Ireland

Italy

Jamaica

Japan

Latvia

Lithuania

Luxembourg

Georgia

Avoidance of Double Taxation

More comprehensive information is available on the Israel Ministry of Finance website

Moldova

Norway

Philippines

Portugal

Poland

Romania

Russia

Singapore

Slovak Republic

Slovenia

South Africa

Spain

Sweden

Switzerland

Thailand

Netherlands Turkey

Ukraine

UK

Uzbekistan

USA

Taiwan

Vietnam

Mexico

South Korea Panama

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Inflation Rate Rate of change in consumer price index

2.39%

-0.10%

3.40% 3.80%

3.91%

2.66%

2.17%

1.63%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

Dotted lines represent BoI Inflation Target range

Source: Central Bureau of Statistics

40

-2%

0%

2%

4%

6%

8%

10%

12%

14%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Real Interest Rate Nominal Interest Rate Inflation Expectaions

Interest Rate

Source: Bank of Israel

41

2.75%

2.50% 2.50%

1.25%

1.00%

0.50% 0.50%

0.25% 0.25%

0.10% 0%

1%

2%

3%

Australia SouthKorea

NewZealand

Israel Canada Euro Area UnitedKingdom

UnitedStates

Switzerland Japan

Central Bank’s Interest Rates International Comparison

Source: Specified Countries’ Central Banks

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43

7.3%

1.9%

2.8%

0.4%

0%

1%

2%

3%

4%

5%

6%

7%

8%

High Tech Mid-High Tech Mid-Low Tech Low Tech

Total industrial production grew by 3.9%

Industrial Production Annual Growth, 2013 average relative to 2004 average

Source: Central Bureau of Statistics

Industrial Export Current U.S. $ Billions, and the share of high tech and mid high tech sectors in the Israeli goods exports

44

0

5

10

15

20

25

30

35

40

45

50

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013*

High Tech

Low Tech

73.2% 72.5%

75.3% 75.4%

76.3%

76.7%

77.4%

80.9%

80.3%

80.1% 79.5%

Source: Central Bureau of Statistics

80.6%

* 2013 available months at annual rate

4.4

1.8

1.4

3.9

2.8

2.3

2.0

1.81.9

1.81.7

1.6

1.3

0

1

2

3

4

5

Isra

el

Fin

lan

d

Germ

an

y

Fra

nce

Belg

ium

EU

27

Can

ad

a

Un

ited

Kin

gd

om

Irela

nd

No

rway

Czech

Rep

.

Sp

ain

Italy

45

Israel is a World Leader in Science, Technology, and Innovation

Source: OECD Science, Technology and Industry Scoreboard 2011. * International Institute for Management Development (IMD) Global Competitiveness

Yearbook 2011. ** World Economic Forum (WEF) Global Competitiveness Report 2012-2013.

Civilian R&D as % of GDP, 2009

1st in R&D expenditure as % of GDP*

1st in quality of scientific research institutions**

1st for entrepreneurship being widespread amongst its managers*

2nd in public expenditure on education*

3rd in venture capital availability**

4th in PCT patents applications per million population**

5th for strength of investor protection**

6 Israelis in the last 10 years have been awarded Nobel Prizes in

the fields of Economics or Chemistry

2013-2012Global Competitiveness Report

“The country’s main strengths remain its world-class capacity for innovation

(3rd), which rests on highly innovative businesses that benefit from the presence

of the world’s best research institutions geared toward the needs of the business

sector. Israel’s excellent innovation capacity, which is supported by the

government’s public procurement policies, is reflected in the country’s high

number of patents (4th). Its favorable financial environment, particularly evident

in the ease of access to venture capital (3rd), has contributed to making Israel an

innovation powerhouse..”

The Institute for Management

Development ranked Israel 19th out of

59 countries for 2012.

Israel has been ranked 1st at

entrepreneurship and 9th at economy

resilience.

Israel in IMD Rankings IMD World Competitiveness Yearbook 2013

Source: IMD World Competitiveness Yearbook 2013 46

78.187

78.210

79.150

79.591

80.513

83.145

83.158

83.305

83.514

85.193

85.505

86.197

88.439

89.128

89.585

89.857

90.531

92.783

93.357

100.000

0 10 20 30 40 50 60 70 80 90 100

(2) USA 1

(17) Finland 20

(19) Israel 19

(18) United Kingdom 18

(20) Ireland 17

(15) Australia 16

(14) Malaysia 15

(11) Netherlands 14

(12) Luxemburg 13

(13) Denmark 12

(7) Taiwan 11

(10) Qatar 10

(9) Germany 9

(16) UAE 8

(6) Canada 7

(8) Norway 6

(4) Singapore 5

(5) Sweden 4

(1) Hong Kong 3

(3) Switzerland 2

Israel’s ranking compared to other IMD countries, Business Efficiency and Infrastructure

Israel’s ranking compared to other IMD countries, Economic Performance and Government Efficiency

Israel in IMD Rankings IMD World Competitiveness Yearbook 2012

Source: IMD World Competitiveness Yearbook 2012 47

Israel in WEF Rankings World Economic Forum Global Competitiveness Index 2012-2013

Source: World Economic Forum Global Competitiveness Index 2012-2013

The World Economic Forum ranked Israel 26th

out of 144 countries for 2012-2013 in terms of

competitiveness.

The Forum also ranked Israel:

1st in Quality of scientific research institutions

3rd in Venture capital availability

4th in PCT patents, applications/million pop.

5th in Strength of investor protection

5th in Firm-level technology absorption

6th in Capacity for innovation

6th in Company spending on R&D

And 8th in University-industry collaboration in

R&D 48

49

Cooperation in Industrial R&D

More comprehensive information is available on the Israel Ministry of Finance website

North America New York Massachusetts Maryland Virginia Wisconsin Colorado Illinois Oregon BIRD (Foundation) Ontario CIIRDF (Foundation)

South America Argentina Uruguay Brazil

Australia (Victoria)

Europe France Russia Italy ( and Trento county) Germany Greece Czech Republic Bulgaria Lithuania Slovenia Denmark Hungary Turkey Portugal Finland Sweden Ireland Spain Cyprus Netherlands * Through EUREKA (40 country Multilateral Initiative)

Asia China (Shanghai, Jiangsu, Shenzhen, Federal) India SIIRD-Singapore (Foundation) KORIL-RDF-Korea (Foundation)

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Learn More

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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

Learn More

52

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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Contact

54

Mr. Roni Hershkovitz

Mr. Ori Kaufman

Dr. Amichai Fishler

Overseas Economic Information

Economics and State Revenue

Department

Ministry of Finance

State of Israel

Write us an email

ronihe@mof.gov.il

orik@mof.gov.il

amichai@mof.gov.il

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