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The Israeli Economy
Stanley FischerBank of IsraelNovember 2007
Macroeconomic Situation
Growth Rate of GDPGrowth Rate of GDP2000-20072000-2007%
8.9
-0.4 -0.6
2.3
5.2 5.3 5.2 5.4
-2
0
2
4
6
8
10
2000
2001
2002
2003
2004
2005
2006
2007
BI- Forecast
Rate of Inflation in Last 12 Months Rate of Inflation in Last 12 Months and Inflation Targets, and Inflation Targets, 1992-20071992-2007
-3
-1
1
3
5
7
9
11
13
15
17
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Inflation during previous 12 months
Inflation target
%
Bank of Israel Interest Rate, Inflation Bank of Israel Interest Rate, Inflation Expectations*, and the Fed’s interest Rate, Expectations*, and the Fed’s interest Rate,
2004-20072004-2007
0
1
2
3
4
5
6
01/0
402
/04
03/0
404
/04
05/0
406
/04
07/0
408
/04
09/0
410
/04
11/0
412
/04
01/0
502
/05
03/0
504
/05
05/0
506
/05
07/0
508
/05
09/0
510
/05
11/0
512
/05
01/0
602
/06
03/0
604
/06
05/0
606
/06
07/0
608
/06
09/0
610
/06
11/0
612
/06
01/0
702
/07
03/0
704
/07
05/0
706
/07
07/0
708
/07
09/0
710
/07
11/0
7
Bank of Israel interest rate
Inflation expectations
Fed's interest rate
%
*For 12 months, as derived from the capital market.
%
3.6
1.8
3.9 4.03.8
3.4
3.02.9
1.6
0.7
4.4
3.8
5.4
3.7
1.9
0.9 0.8
0
1
2
3
4
5
6
2000 2001 2002 2003 2004 2005* 2006 2007 2008
Deficit Target Actual Deficit
Budget Deficit** (percentage of GDP, 2000-2007)
*Percent of GDP; excluding credit extended. Until 1996, domestic deficit; from 1997, total deficit. *The data from 2000 refer to the deficit excluding the Bank of Israel’s profits.
Under the assumption
that the budget is fully
performed
Public Sector Debt,Percentage of GDP, 2000-2007 (year-end)
87.091.9
99.8 101.7 99.995.9
86.781.5
0
20
40
60
80
100
120
2000 2001 2002 2003 2004 2005 2006 2007E
%
International Aspects
The Nominal and the Real Exchange RateThe Nominal and the Real Exchange Rate2007 -2007 - 19971997
3.0
3.2
3.4
3.6
3.8
4.0
4.2
4.4
4.6
4.8
5.0
Shekel / Dollar Exchange Rate01/01/1997-30/10/2007
90
95
100
105
110
115
120
125
130
135
The Real Exchange Rate by Trading Partners
)100=01/1997 ,01/1997-10/2007(127.2
NIS
*The Nis/$ chart is on a daily basis, while the real exchange rate chart is on a monthly basis.
•A rise in the index indicates depreciation.
•The figure for October 2007 is calculated from spot exchange rates known for the half-month, our forecast CPI from the monthly model, and an extrapolation of inflation in the countries whose currencies are in the currency basket.
•SOURCE: IFS data. For April to October 2007, Bank of Israel calculations.
-5.1 -5.0
-3.1
-0.9-1.4
-0.8 -1.1 -0.8
1.2
2.4
3.33.8
5.6
-6
-4
-2
0
2
4
6
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
E
Current Account of Balance of PaymentsCurrent Account of Balance of Paymentsas Percentage of GDP, 1995-2007* (Annual)
* Foreign Currency Department forecast•SOURCE: Balance of Payments, Central Bureau of Statistics.
Openness of the Israeli Economy(percentage of GDP, 1995-2006)
30
32
34
36
38
40
42
44
46
48
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Imports
Exports
%
* Goods and Services.
Source: National accounts, CBS.
1995High36%
Medium-high28%
Medium-low21%
Low15%
Manufacturing Exports by Technology IntensityManufacturing Exports by Technology Intensity
High-technology Industries: office & computing equipment, electronic components, aircraft, electronic communication equipment, equipment for control & supervision, pharmaceutical products.
Medium-high-technology Industries: chemicals & refining petroleum, machinery & equipment, electronic equipments & electrical motors, transport equipment.
Medium-low-technology Industries: mining & quarrying, rubber & plastic products, non-metallic mineral products, basic metals, metal products, ships & boats, jewelry & silversmiths’, articles n.e.c.
Low-technology Industries: food products, beverages & tobacco, textiles, wearing apparel & leather, paper, printing & wood products.
2006 Low7%
Medium-low18%
Medium-high27%
High48%
Source: Foreign Trade, CBS.
Technology-Intensive Exports*(Percentage of GDP, 1999-2006)
*Including high technology industries and medium-high technology industries
10.9
12.5 12.3 12.1
13.9 14.3
15.4
13.2
0
2
4
6
8
10
12
14
16
18
1999 2000 2001 2002 2003 2004 2005 2006
%
Investment in Israel by Nonresidents(as percentage of GDP, 2000-2007*)
Investment of Israeli Residents Abroad (as percentage of GDP, 2000-2007*)
02468
101214161820
2000 2001 2002 2003 2004 2005 2006 Jun 2007
Direct investment Portfolio investment
0235689
1112141517
2000 2001 2002 2003 2004 2005 2006 Jun 2007
Direct investment Portfolio investment
SOURCE: Central Bureau of Statistics, Balance of Payments.
%
%
8,092
14,302
4,792
4,1386,871
2,0413,822
1,812
1,767
7233,626
755,062
5,058
8,956
14,3998,244
2,9304,544
2,381
2,0653,154
2,708982
1,623688
2,1493,336
* Foreign Currency Department forecast
1,615
4,878
4,025
4,458
Financial Markets and Risk Premium
The Share Markets: Israel, the US and the Emerging Markets,
(1/6/2006=100, 1/6/2006 - 30/10/07)
85
95
105
115
125
135
145
155
165
175
Israel (Tel Aviv 100) - right scale
right scale - EM (EMERGING MARKETS)
left scale - NASDAQ
Israel 5 year Credit Default Swap 6/2003 - 10/2007
0
20
40
60
80
100
120
140
5yr CDS
1722
-0.2
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2
Israeli Shahar - US Government 10 Year Spread, 1/2006 - 10/2007
%
Science, Technology &Education
ICT value added ICT value added as percentage of business sector product as percentage of business sector product
20032003
4.85.7
6.7 6.9 6.97.6 7.6
8.1 8.2 8.4 8.5 8.5 8.6 8.8 9.1 9.19.8 9.9
10.510.811.8
13.2
14.915.716.0
0
2
4
6
8
10
12
14
16
18
SOURCE: Central Bureau of Statistics.
National Expenditure on R&D National Expenditure on R&D as percentage of GDPas percentage of GDP
20052005
0.50.8
1.0 1.1 1.11.3 1.4 1.4
1.6 1.7 1.7 1.8 1.8 1.9 2.0 2.12.4 2.4 2.5
2.8 2.9 2.9
3.33.5 3.6
4.4
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
Greec
e
Portu
gal
New Z
eala
nd
Spain
Italy
Irela
nd
Czech
Rep
ublic
Norway
Unite
d Kin
gdom
Canad
a
Austra
lia
Nethe
rlands
Belgi
um
Franc
e
aver
age
OECD
Unite
d Sta
tes
Germ
any
Austri
a
Denem
ark
Icel
and
Korea
Switzer
land
Japan
Finla
nd
Sweden
Isra
el
SOURCE: Central Bureau of Statistics.
Share of the Population Aged 25-64 with Share of the Population Aged 25-64 with Tertiary-Level Education Tertiary-Level Education
20052005
1012 13 13 14 15
17 17 1821
25 25 26 27 27 28 29 29 30 30 30 31 31 32 32 33 34 35
39 40
46 46
0
10
20
30
40
50
Source: Education at a Glance (OECD), 2007.
Challenges
Rate of Unemployment2000.I-2007.II (Quarterly)
%
SOURCE: Based on Central Bureau of Statistics Labour Force Survey.
7.67.77.88.3
8.9 8.88.88.9
0
3
6
9
12
Poverty Rate, Relative Measure and a Constant Basket, 1997-2006
23.8%
16.1%
14.2%
12.7%
15.6%16.6% 16.9%
16.1%
23.7%23.2%
18.8% 18.8%19.6%
20.0%
17.7%
17.5%
21.6%
17.4%17.5%
13.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Poverty (relative measure)
Poverty (1997 basket)
•Excluding Jerusalem Arabs.
SOURCE: Central Bureau of Statistics Income and Expenditure Surveys.
Incidence of Relative Poverty among Individuals, 1997 and 2006a
38.5
22.5
13.710.2 10.9
51.6
34.1
24.219.9
11.4
0
10
20
30
40
50
60
0-8 9-10 11-12 13-15 16+
1997 2005
26.1
11.917.5
30.935.6
23.4
14.0
25.4
51.6
65.7
0
10
20
30
40
50
60
70
1 2-4 5-6 7-8 9+
1997 2005
12.3
39.335.9
13.3
58.8 56.1
0
10
20
30
40
50
60
70
Others Ultra-orthodox Arabs
1997 2005
a Excluding Jerusalem Arabs.
SOURCE: Central Bureau of Statistics Income and Expenditure Surveys.
By family sizeBy education of head of household
By number of wage earnersBy population group
60.1
20.4
2.1
78.1
36.1
4.5
0
10
20
30
40
50
60
70
80
90
0 1 2+
1997 2005
Average Class Size by Level of Education 2005
0
5
10
15
20
25
30
35
40Primary Education
Lower Secondary Education
Source: Education at a Glance (OECD), 2007.
Change in Expenditure on Educational Institutions for all Services per Student
(Between 1995 and 2004, 1995=100, constant prices 2004)
0
50
100
150
200
250
Switzerla
ndIs
rael
Germ
any
Italy
Norway
Sweden
United
Kingdom
Denmar
k
Finlan
d
Czech
Repub
lic
Japa
n
Mex
ico
United
State
s
Spain
Nether
lands
Australia
OECD aver
age
Portugal
Slovak
Rep
ublic
Hungary
Irela
nd
Poland
Greece
Turkey
Primary and Secondary Education Institutions*
Tertiary Education Institution
Source: Education at a Glance,2007.*incl. Intermediate schools and Pre-Academic Preparatory Courses
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