The Israeli Economy. The Israeli Economy - 2009 Facts & Figures GDP ($Billion) 195.8 Population...

The Israeli Economy

The Israeli Economy - 2009 Facts & Figures

• GDP ($Billion) 195.8• Population (7/2010, Million) 7.6• GDP per capita (2008, $ PPP) 27,900• Foreign Trade (% of GDP) 67% • Total Exports (% of GDP) 35%• Unemployment (7/2010) 6.2%

The Israeli Industry

• Share of business sector 21% • Industrial Sales ($Billion) 82.3• Industrial Exports (% of sales) 42.5% • Employees 360K• Main branches: Chemicals, Electronics & Food2

The Manufacturers' Association of Israel

The Israeli Economy:Before the Global Crisis


3

5 Years of Rapid Growth in Israeli Economy

4


GDP GDP per Capita Business Sector GDP

5.1%

3.3%

6.9%

4.9%

3.0%

5.8%5.7%

3.8%

7.0%

5.3%

3.5%

5.9%

4.2%

2.4%

4.7%

The Israeli EconomyReal Annual Changes

Source: CBS

5 Years of Rapid Growth in Israeli Industry

5


Industrial Production Industrial Export Employees

7.0%

17.6%

1.1%

3.7%

5.0%

1.6%

9.8%

11.7%

2.8%

4.5%

12.2%

3.8%

7.4%8.6%

1.7%

Real Annual Changes

Source: CBS

The Israeli Economy:During the Global Crisis


6

Positive Growth in Israel Vs. Regression in Most Developed Countries

Source: Merrill Lynch

7


0.7

Relatively Moderate Regression in Israeli Industry

Source: OECD, CBS & MAI Economic Research Department

8


4%

-1%

-4% -4% -4%

-6%

-9% -10%-10%-11%-12%-12%-12%

-16%-16%

-18%-18%-18%

-21%

Real Industrial Output Change, 2009 compared to 2008

Economic Policy During the Crisis

10

Responsible Fiscal PolicyRestrained Government Budgetary Deficit

As Percentage of GDP

Source: Bank of Israel The Manufacturers' Association of Israel

*Estimate

6.0%5.5%

5.2%

-

Target Deficit Actual Deficit

14.3%13.6%

11.5% 11.2%10.3% 9.9% 9.4%

7.5%

5.3% 5.2%

3.3%2.2%

0.5%

Israel’s Government Deficit is Relatively LowAs Percent of GDP, 2009

Eurostat, IMF

Relatively Low Government Deficit in Israel

Source: Eurostat, Israeli Ministry of Finance

11


Round Table ForumGovernmentGovernment

EmployersEmployers EmployeesEmployees

Social Partnership

Model

Israel Package Deal in 2009/10 Budget

• Purpose: Reduce impact of global crisis on the Israeli

economy, while Supporting the business sector.

• Achievements:

– Support for the business sector:

• Investment and direct support - $ 550 Million

• Increasing state guarantees - $ 1.5 Billion

• Increasing Medium-sized businesses fund - $ 325 Million

– Increasing Domestic Demand: Potential of $ 1 Billion

– Maintaining competitiveness: Preventing price increases -

property tax, water, electricity, additional taxation - millions of $.


13

Expanding Monetary PolicyInterest Rates of Central Banks OInterest Rates of Central Banks Over the Worldver the World

%

Crisis begins

Northern Rock Lehman-Brothers collapse

Israel

Source: Bank of Israel14


Exceptional measures: buying foreign currency & bonds

Additional Economic Measures

• Establishing funds to ease credit crunch

• Leadership statements :

• Ensuring public deposits in the banking system

• A safety net to ensure pension savings

15


No need to rescue financial institutions

The Israeli EconomyThe Israeli Economy

StrengthsStrengths

0.3%

-1.3%

-3.7%

-4.5%-4.9%

-0.9%

0.6%

1.8%

3.1%

5.1%

2.9%

0.7%

3.8%

A Surplus in The Balance of Payments Current AccountAs Percentage of GDP

Independent of Outside Funding A Continuing Current Account Surplus

Source: CBS & MAI Economic Research Department 17


Export Oriented Growth in Industry

18


7%

41%34% 27% 31%

54%62%

80%

102%

120%

102%

139%

0%

1%

12%

6%4% 4%

11%15%

26%32%

42%33%

47%

Jan.-July 2010

Industrial Exports

Industrial Production

Export Oriented Growth in IndustryReal Cumulative Rate of Change, Since 1998

Export = 31% of Sales

Export = 42.5% of Sales

Source: CBS & MAI Economic Research Department

Diversion of Trade to Asian Countries

19


Other Asia US EU

23%

15%

28%

34%

22%

20%

28%

30%

Jan. - Aug. 2010

Distribution of export according to areas


Industrial Output Employment in Industry

Industrial Export

88%

75% 72%

The High Tech Sector Contribution to Industrial Growth in 2004-2009

High Tech As Percentage of Total Growth 2004-2009

A High Tech oriented Growth A High Tech oriented Growth --Most of Industrial growth derived Most of Industrial growth derived fromfrom the High Tech Sector the High Tech Sector

Contribution to


20


Relatively Low Household Debt in Israel Household Debt to Disposable Income Ratio

21


יחס החוב של משקי הבית להכנסה הפנויה

צרפת

גרמניה

ארה"בספרד

קנדה

ישראל

בריטניה

30

40

50

60

70

80

90

100

110

120

2000 2001 2002 2003 2004 2005 2006 2007 2008

המקור: OECD, הלשכה המרכזית לסטטיסטיקה והחטיבה למידע וסטטיסטיקה של בנק ישראל.

GBUSA

SpainSpain

Canada

GermanyIsrael

France

Israel’s Unemployment rate is relatively low

22


20.3%

13.8%12.2%

10.1% 10% 9.5%8.5% 8.5% 8.4% 7.8%

6.9%6.2%

5.2%

As Percent of Civilian Labor Force, July 2010

ʸ ʥ̫ʮEUROSTATʮʬʱ

Israel’s Unemployment Rate is relatively low

Source: Eurostat, BLS, CBS

Relatively High Private Saving Rate in Israel

Households Net Saving Rate as Percentage of Total Income, 2007

Source: Leumi Bank

The Banking System Conservative & Supervised

24

%


Bank Nonperforming Loans to Total Loans – Low Ratio in Israel

25


0

10

20

30

40

50

6061.2

5.43.3

1.7 1.5 0.4

In Percent, 2009

Source: IMF

Housing Prices - Relatively Moderate Increase

26Source: Psagot Investment House


Nominal Change in Average Apartment Price, 1997-2007

Upgrading International Status

• Late 2007 - Early 2008: Raising Israel credit

rating by Standard & Poor's, Moody‘sו- Fitch.

• May 2010: Israel's admission to the OECD.

• May 2010: Updating Israel classification in MSCI

index from a developing to a developed country


27

Responsible Fiscal Policy Persistence2011-2012 Biennial Budget• Increasing certainty and stability - Stimulating growth &

investment

• Long-term planning - Improving the planning processes in government offices

• Reducing Political pressure and streamlining processes.

New Formula to Limit Government • Purpose: Reducing Debt/GDP ratio while maintaining an

adequate level of public services.

• Formula:


28

60% / (Actual Debt/GDP) X (Annual growth rate in the past 10 years)

60% = Target Debt/GDP Ratio According to Maastricht Treaty

How to Achieve Competitiveness after the Crisis? 1.Reduction of Corporate Tax2.Nurturing Innovation3. Increasing Efficiency

Continuous Reduction of Corporate Tax in Israel


30

2011F 2012F 2013F 2014F 2015F 2016F

34%

31%

29%

27%26%

25%24%

23%22%

21%20%

18%

Reduction of a Corporate Tax in Israel

Source: Israeli Ministry of Finance

How to Achieve Competitiveness after the Crisis? 1.Reduction of Corporate Tax2.Nurturing Innovation3. Increasing Efficiency

Nurturing Innovation = Israel’s Competitive Edge

World Leadership in Civilian R&D Investments

Source: CBS

33


4.8%

3.5% 3.5% 3.4% 3.4%

2.5% 2.4%1.9% 1.9%

1.6%1.3% 1.2% 1.1% 1.0%

Israel is The World Leader in Civilian R&D InvestmentAs Percentage of GDP, 20

Isra

el 2

008

– 4.

7%

17.0

14.8 13.7

12.1 10.9 10.8 10.7

9.2 8.7 8.4 8.3 7.9 7.9 7.9 7.6 7.6 7.5 7.5 7.1 7.1 6.9 6.8 6.7

5.0

ICT Sector GDP, Out of The Business Sector GDP 2006

2009

16

%High Share of ICT in the Business

SectorICT= Information & Communications Technologies, 2006

Source: CBS

34


Source: The Global Competitiveness Report 2010-2011, World Economic Forum

High Quality of Scientific Research Institutions

35


IsraelSwitzerland

UKUSA

GermanyCanada

AustraliaSingapore

DenmarkNew Zealand

JapanIrelandFranceNorway

KoreaIndia

Hong KongChina

Italy

12

34

68

101112

14

1516

1923

2530

3539

65

The Global Competitiveness Report 2010/ 1* Ranked Israel 1st in the World by the Quality of scientific research institutions Index

* Of The World Economic Forum

Highly Educated Population

Source: OECD, CBS

36


49%44%

43%41%

40%37%37%

36%36%

34%34%34%

33%32%32%

29%28%

27%25%

23%18%

14%14%

CanadaIsraelJapan

United StatesNew Zealand

FinlandKorea

NorwayAustraliaDenmark

IrelandSwitzerland

United KingdomNetherlands

SwedenSpain

OECD averageFrance

GermanyGreeceAustria

ItalyPortugal

Highly Educated Population, 200Post High School Educated As Percent of population in the ages of 25-64, 2008

How to Achieve Competitiveness after the Crisis? 1.Reduction of Corporate Tax2.Nurturing Innovation3.Increasing Efficiency

0%2%

9%9%

17%18%

3%

6% 6%

8%9%

Industry

Business Sector

Product per Hour, Real Cumulative Change

Labor ProductivityContinuous Increase in Labor Productivity

38

The Manufacturers' Association of Israel Source: CBS & MAI Economic Research Department

Employment Flexibility During the Crisis

39


Real Decrease in Wages at the Israeli Business Sector

1.2%

3.6%

6.0%

3.8%

1.1%

-1.2%

-2.4%

0.3%

-1.1% -1.6%-2.1%

-4.2%

-2.1% -1.8%

0.1%

1.3%

Real Wage in Business SectorReal Changes, Compared to the Parallel Period in a Previous Year


80%

30%

7%

15%

6%

11%

Reducing Overtime

At the expense of employees' vacation days

Unpayment vacation

At the expense of employees vacation days

while lowering wages

Reducing job scopes while lowering wages

Efficiency Measures Taken by Industrial CompaniesTowards all Employees, Excluding Management

Employment Flexibility During the Crisis

40Source: MAI Economic Research Department, Survey - February 2009


Concentrated vacation

Shortened workweek

How to Achieve Competitiveness after the Crisis?

Israeli Economy Main Challenges

• Preserving the competitive advantage: R&D, technology, innovation

• Encouraging foreign direct investment (Law Changes)

• Upgrading the education system

• Upgrading infrastructures

• Reducing bureaucracy

• Encouraging entrepreneurship

• Raising employment rate


41

2010 Forecasts

An Accelerated Growth is Expected in 2010

43


GDP GDP per Capita Business Sector GDP

4.0%

2.2%

4.5%

0.7%

-1.1%-0.2%

4.1%

2.2%

4.5%

-

1.6%

3.8%

2010 est. 2011 Forecast

Economic Forecast for 2011Real Annual Changes

Source: CBS

Export Oriented Growth is expected in Israeli Industry, 2010

* Excluding Diamonds44



Industrial Production Industrial Export Employees

7.4% 8.6%

1.7%

-6.0%-8.3%

-4.8%

2010 est.

Real Annual Changes

2010ʤʩʩ́ ʲ ʺ ʡʺ ʹ ʣʥʧʮʤʧʩʮʶ

ʨɦ ʥʢʥʠʹ ʣʥʧʣ̡ʠʥʁʩʤʩhʥ̋hʯʣʮʥʠʬʲ ʱ ʱ ʥʡʮʩʬʥʩʭʩ́ʣʥʧʬʠʥʁʩʤʩyʩʧʮ-ʨɦ ʥʢʥʠ

Source: IMF & Bank of Israel

45

Relatively Low Unemployment Rate is Expected in Israel, 2011


19.3%

14.6%

13%

10.9%10% 9.8% 9.6%

8.7% 8.6% 8.5% 8.2%7.5% 7.4% 7.1%

6%5.1%

ʺ ʰʹ ʬʬʠʸ ʹ ʩʡʩʥɹʁ ʤʤʬʨʡʠʤy ʥ̡ʩ́ʺ ʩʮʥʠʬʰʩʡʤʠʥʥ́ʤʡʪʥʮʰAs Percent of Civilian Labor Force

ʸ ʥ̫ʮʤ̋ ʩʦʧʺ-IMFʸ ʡʥʨ̫ ʥʠʬʠʸ ʹ ʩ̫ʰʡ

Israel’s Growth Outlook – Well Above Developed Countries Average

Source: IMF, Merrill Lynch, March 2010.46


Thank you

Manufacturers’ Association of Israel

Daphna Aviram-Nitzan, Head of Economic Research Department Julie Sadeh Zeltcer, Head of Economics Analysis SectionHagit Shmariahu, EconomistEddie Parkansky, EconomistTel. 03-5198806

This publication is also available at the MAI site :www.industry.org.il

For additional information please contact the Economic Research Department’s staff:

47

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