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September 2012

The Israeli Economy Strengths and Challenges. September 2012. The Israeli Economy – 2011 Facts & Figures. GDP ($ Billion) 244 Population (6/2012, Million) 7.9 GDP per capita ($) 31,385 Foreign Trade (% of GDP) 75% Total Exports (% of GDP) 37%

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September 2012

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  1. The Israeli Economy Strengths and Challenges September 2012

  2. The Israeli Economy – 2011 Facts & Figures • GDP ($ Billion) 244 • Population (6/2012, Million) 7.9 • GDP per capita ($) 31,385 • Foreign Trade (% of GDP) 75% • Total Exports (% of GDP) 37% • Unemployment (7/12) 6.5% • Business Sector share in GDP 72% • Industry share of business sector 21% The Manufacturers' Association of Israel

  3. Main Strengths & Opportunities Towards 2013 The Manufacturers' Association of Israel

  4. Strengths & Opportunities • The Resilience of Israeli Economy during 2008/9 Crisis • Strong starting point towards 2012 • Export oriented growth • High-tech oriented growth • World leadership in civilian R&D investments • Conservative approach • Responsible fiscal policy • Diversion of Trade towards developing countries • Attractive Corporate tax 4 The Manufacturers' Association of Israel

  5. Positive Growth in Israel Vs. Regression in Most Developed Countries The Manufacturers' Association of Israel

  6. Relatively Moderate Regression in Israeli Industry during 2008/9 Crisis Source: OECD, CBS & MAI Economic Research Department The Manufacturers' Association of Israel

  7. Relatively Moderate Increase in Real Estate Prices Before 2008/9 Crisis Nominal Change in Average Apartment Price, 1997-2007 Source: Psagot Investment House. The Manufacturers' Association of Israel

  8. Relatively moderate Dismissals During 2008/9 Global CrisisEmployee Jobs in the Business Sector The Manufacturers' Association of Israel

  9. Employment Flexibility During 2008/9 Crisis Concentrated vacation Shortened workweek Source: MAI Economic Research Department, Survey - February 2009 9 The Manufacturers' Association of Israel

  10. Strengths & Opportunities • The Resilience of Israeli Economy during 2008/9 Crisis • Strong starting point towards 2012 • Export oriented growth • High-tech oriented growth • World leadership in civilian R&D investments • Conservative approach • Responsible fiscal policy • Diversion of Trade towards developing countries • Attractive Corporate tax 10 The Manufacturers' Association of Israel

  11. Rapid Growth in Israeli Economy2004 - 2011 The Manufacturers' Association of Israel

  12. Independent of Outside Funding A Decade of Current Account Surplus The combination of a continual surplus in the current account and the large amount of foreign currency reserves, enable Israel to provide its import needs without dependence on external financing. Source: ICBS, 2012 Forecast – MAI’s Economist Research department. The Manufacturers' Association of Israel

  13. Companies & Individuals Lend Money to the World Net External Debt* (-) Sign: the economy is a net lender abroad $ Billions Net external debt: External debt less foreign assets in debt instruments (excluding share capital). 13 The Manufacturers' Association of Israel

  14. Strengths & Opportunities • The Resilience of Israeli Economy during 2008/9 Crisis • Strong starting point towards 2012 • Export oriented growth • High-tech oriented growth • World leadership in civilian R&D investments • Conservative approach • Responsible fiscal policy • Diversion of Trade towards developing countries • Attractive Corporate tax The Manufacturers' Association of Israel

  15. Export Oriented Growth The Manufacturers' Association of Israel

  16. Strengths & Opportunities • The Resilience of Israeli Economy during 2008/9 Crisis • Strong starting point towards 2012 • Export oriented growth • High-tech oriented growth • World leadership in civilian R&D investments • Conservative approach • Responsible fiscal policy • Diversion of Trade towards developing countries • Attractive Corporate tax The Manufacturers' Association of Israel

  17. The High Tech Sector Contribution to Industrial Growth 2004 –2011 The Manufacturers' Association of Israel

  18. The Israeli Industry is Undergoing Long term Structural Changes The Manufacturers' Association of Israel

  19. High Share of ICT in the Business Sector ICT= Information & Communications Technologies, 2008 Source: Israeli CBS The Manufacturers' Association of Israel

  20. Strengths & Opportunities • The Resilience of Israeli Economy during 2008/9 Crisis • Strong starting point towards 2012 • Export oriented growth • High-tech oriented growth • World leadership in civilian R&D investments • Conservative approach • Responsible fiscal policy • Diversion of Trade towards developing countries • Attractive Corporate tax The Manufacturers' Association of Israel

  21. World Leadership in Civilian R&D Investments Source: Israeli CBS The Manufacturers' Association of Israel

  22. Global R&D and Innovation Center The Manufacturers' Association of Israel

  23. Strengths & Opportunities • The Resilience of Israeli Economy during 2008/9 Crisis • Strong starting point towards 2012 • Export oriented growth • High-tech oriented growth • World leadership in civilian R&D investments • Conservative approach • Responsible fiscal policy • Diversion of Trade towards developing countries • Attractive Corporate tax The Manufacturers' Association of Israel

  24. High Private Saving Rate in Israel Source: OECD & BOI The Manufacturers' Association of Israel

  25. Strengths & Opportunities • The Resilience of Israeli Economy during 2008/9 Crisis • Strong starting point towards 2012 • Export oriented growth • High-tech oriented growth • World leadership in civilian R&D investments • Conservative approach • Responsible fiscal policy • Diversion of Trade towards developing countries • Attractive Corporate tax The Manufacturers' Association of Israel

  26. Relatively Low Government Deficit in Israel Source: IMF, Caesarea Forum, The Israeli Democracy Institute (IDI). 26 The Manufacturers' Association of Israel

  27. Continuous Reduction of Public Debt Ratio Source: Bank of Israel. The Manufacturers' Association of Israel

  28. Relatively Low Public Debt Ratio Source: IMF,Caesarea Forum, The Israeli Democracy Institute (IDI). The Manufacturers' Association of Israel

  29. Israel Credit Rating • September 2011 – S&P raised Israel’s credit ratings to A+ from A. S&P mentioned that their ratings on Israel are supported by their view of its "prosperous and resilient economy, strong institutions, ongoing fiscal consolidation, and robust external performance." • December 2011 – Moody’s affirms Israel’s A1 rating. The Manufacturers' Association of Israel

  30. Strengths & Opportunities • The Resilience of Israeli Economy during 2008/9 Crisis • Strong starting point towards 2012 • Export oriented growth • High-tech oriented growth • World leadership in civilian R&D investments • Conservative approach • Responsible fiscal policy • Diversion of Trade towards developing countries • Attractive Corporate tax The Manufacturers' Association of Israel

  31. Diversion of Trade to Asian Countries 24% 14% 41% 70% The Manufacturers' Association of Israel

  32. Strengths & Opportunities • The Resilience of Israeli Economy during 2008/9 Crisis • Strong starting point towards 2012 • Export oriented growth • High-tech oriented growth • World leadership in civilian R&D investments • Conservative approach • Responsible fiscal policy • Diversion of Trade towards developing countries • Attractive Corporate tax The Manufacturers' Association of Israel

  33. Corporate Tax 2012 INDUSTRIAL COMPANIES WITH EXPORT CAPABILITY 2011-12: 15% - 10% 2013-14: 7% - 12.5% 2015+: 6% - 12% Source: OECD. * Simple average of member countries. The Manufacturers' Association of Israel

  34. Main Challenges Towards 2013 The Manufacturers' Association of Israel

  35. Main Challenges Towards 2013 A Global economy slowdown High Import Penetration A slowdown in Israeli Economy Increasing Costs Controlled by the Government Wage pressure Credit crunch in industry Government bureaucracy Uncertain fiscal policy Off-shoring Geopolitical instability The Manufacturers' Association of Israel

  36. Slowdown inWorld Trade The Manufacturers' Association of Israel

  37. Unbalanced Growth Around the World The Manufacturers' Association of Israel

  38. Main Challenges Towards 2013 A Global economy slowdown High Import Penetration A slowdown in Israeli Economy Increasing Costs Controlled by the Government Wage pressure Credit crunch in industry Government bureaucracy Uncertain fiscal policy Off-shoring Geopolitical instability The Manufacturers' Association of Israel

  39. Import Penetration Source: OECD The Manufacturers' Association of Israel

  40. Main Challenges Towards 2013 A Global economy slowdown High Import Penetration A slowdown in Israeli Economy Increasing Costs Controlled by the Government Wage pressure Credit crunch in industry Government bureaucracy Uncertain fiscal policy Off-shoring Geopolitical instability The Manufacturers' Association of Israel

  41. Slowdown in Israeli Economy The Manufacturers' Association of Israel

  42. Main Challenges Towards 2013 A Global economy slowdown High Import Penetration A slowdown in Israeli Economy Increasing Costs Controlled by the Government Wage pressure Credit crunch in industry Government bureaucracy Uncertain fiscal policy Off-shoring Geopolitical instability The Manufacturers' Association of Israel

  43. Increasing Costs Controlled by the Government environmental protection lawsinitiatives-> increased costs World Energy Prices: upside risks (sanctions on Iran) * Business Economics Department Projections for 2012/3. The Manufacturers' Association of Israel

  44. Main Challenges Towards 2013 A Global economy slowdown High Import Penetration A slowdown in Israeli Economy Increasing Costs Controlled by the Government Wage pressure Credit crunch in industry Government bureaucracy Uncertain fiscal policy Off-shoring Geopolitical instability The Manufacturers' Association of Israel

  45. An Additional Wage Updates are Expected due to the Minimum Wage Update • January 20113,850 NIS • April 2011(By law)3,890 NIS • July 20114,100 NIS (By law in 4/12) • October 20124,300 NIS (By law in 4/13) • Contractor workers agreement • (Differential minimum wage/ Equal conditions??) The Manufacturers' Association of Israel

  46. Difficulty in Recruiting Professional Employees for the Industry According to preliminary findings of a survey of expectations in industry 46 The Manufacturers' Association of Israel

  47. Main Challenges Towards 2013 A Global economy slowdown High Import Penetration A slowdown in Israeli Economy Increasing Costs Controlled by the Government Wage pressure Credit crunch in industry Government bureaucracy Uncertain fiscal policy Off-shoring Geopolitical instability The Manufacturers' Association of Israel

  48. Credit Crunch in Industry ?? According to survey of expectations in industry Source: Survey of expectations in Industry, July 2012, 176 respondents. The Manufacturers' Association of Israel

  49. Main Challenges Towards 2013 A Global economy slowdown High Import Penetration A slowdown in Israeli Economy Increasing Costs Controlled by the Government Wage pressure Credit crunch in industry Government bureaucracy Uncertain fiscal policy Off-shoring Geopolitical instability The Manufacturers' Association of Israel

  50. Israeli Government Bureaucracy:A Major Obstacle for Businesses Source: The Global Competitiveness Report of World Economic Forum (WEF), the 2012/13 report covers 144 economies. 50 The Manufacturers' Association of Israel

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