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ECONOMIC HIGHLIGHTS 3 rd QUARTER 2007

STATE OF ISRAEL MINISTRY OF FINANCE INTERNATIONAL AFFAIRS DEPARTMENT. ECONOMIC HIGHLIGHTS 3 rd QUARTER 2007. October 10, 2007. Contents:. Main Characteristics. Economic Figures. Balances. International Comparisons, additional data and industry. Israel and the OECD.

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ECONOMIC HIGHLIGHTS 3 rd QUARTER 2007

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  1. STATE OF ISRAELMINISTRY OF FINANCEINTERNATIONAL AFFAIRS DEPARTMENT ECONOMIC HIGHLIGHTS 3rd QUARTER 2007 October 10, 2007

  2. Contents: • Main Characteristics • Economic Figures • Balances • International Comparisons, additional data and industry • Israel and the OECD • International Treaties • Relevant Sites Note: You can return to the beginning of each chapter by clicking the button on the top left side.

  3. Israel’s Economy: Main Characteristics • Export Oriented Growth • Rapid Development of Technology & High-Tech Industries • Entrepreneurial Culture • Supportive Environment for Business • Investment and R&D Incentives

  4. Economic Figures Press for desired slide or continue: 5 Main Indicators and Forecast 6 GDP and GDP per Capita 7 Growth: Israel compared to the World 8 Major GDP Components 9 Exports of Goods and Services 10 Exports of Goods by Region 11 Structure of Industrial Exports 12 Imports of Goods and Services 13 Imports of goods by Region 14 Main Trading Partners 15 Foreign Investments 16 Unemployment Rate 17 Newly Employed Persons 18 Inflation Rate 19 Estimates for 2007 Back to Contents

  5. Economic Figures Main Economic Indicators and Forecast Source: Central Bureau of Statistics, Bank of Israel, Ministry of Finance. * Using the estimate NIS made by the Ministry of Finance, Multiplied by Bank of Israel’s average US$-NIS exchange rate for 2007. **Predicted Annual % Change done by the Ministry of Finance. Note differences between real and nominal figures. GDP per capita by PPP data was available only for 2005 and 2006. 5

  6. Economic Figures The market has made a quick recovery from the northern conflict GDP and GDP per Capita (Annual rate of change (%), in Constant Prices) 6 Source: Central Bureau of Statistics, Ministry of Finance

  7. Economic Figures GDP Growth - Israel compared to the World (Annual rate of change (%), in constant prices) Private consumption in Israel is a leading factor, as it is worldwide Source: Ministry of Finance, Israel Export Institution Projections for 2007-8: Ministry of Finance; for 2008-9: Israel Export Institute 7

  8. Economic Figures 2006 was characterized by sustainable growth in all GDP components Major GDP Components(Annual rate of change (%), in constant prices) 8 Source: Central Bureau of Statistics, Ministry of Finance

  9. Economic Figures Exports of Goods and Services (B$) Almost all forms of export registered high growth throughout 2006 Source: Central Bureau of Statistics H1: 1st half 9

  10. Economic Figures 2006 2007 H1 Of which: USA: 31.4% Exports of Goods by Region(Excluding diamonds) In 2006: Exports to the EU rose by 12% and to the US by 27.3% Source: Central Bureau of Statistics, Bank of Israel, Ministry of Finance Rest of Europe Includes E.F.T.A. H1: 1st half 10

  11. Economic Figures Structure of Industrial Exports High Tech and pharmaceuticals rose by 20.6% and 50.7%, respectively, in 2006 25% 25% 26% 27% 23% 24% 27% 26% 75% 75% 74% 73% 77% 76% 74% 35% 73% 65% 11 * Jan-Aug, seasonally adjusted, at annual rate.

  12. Economic Figures Imports of Goods and Services (B$) Private vehicle imports comprised 46% of the trade deficit ($2.5 billion) Source: Central Bureau of Statistics, Ministry of Finance H1: 1st half 12

  13. Economic Figures 2006 2007 H1 Of which: USA: 13.4% Of which: USA: 14.6% Imports of Goods by Region 2006 (excluding Diamonds) EU remains strongest source for imports and strongest destination for exports Source: Central Bureau of Statistics, Bank of Israel, Ministry of Finance H1: 1st half 13

  14. Additional data 14.8 2006 7.8 4.9 3.3 3 3.1 2.8 2.3 2.1 2.1 2 EXPORT IMPORT 2.7 1.9 1.7 1.6 1.6 1.3 1.3 1.3 1.1 2007 H1 1997 – 2006 has seen a 100% increase in industrial exports Israel’s Main Trading Partners($US Billions) 14 Source: Central Bureau of Statistics; H1: 1st half

  15. Economic Figures Foreign Investments (B$) 2006 registered nearly one hundred purchases of Israeli technology companies 15 Source: Ministry of Finance

  16. Economic Figures Unemployment and Participation Rates by Quarters(Rate of Total Labor Force) Rapid business sector growth has contributed to the decline in unemployment 16 Source: Central Bureau of Statistics

  17. Economic Figures Newly Employed Persons in 2006 (Change in Israeli Employed Persons, in Thousands) Real wages rose by 1% in 2006 and by 3.6% between January and April 2007 Source: Ministry of Finance, Bank of Israel H1: 1st half 17

  18. Economic Figures ResponsiblefiscalpolicyandastrongNIS(vs. the $)havestabilizedinflation Inflation Rate (Rate of Change in CPI, end of year) 18 Source: Central Bureau of Statistics, Ministry of Finance

  19. Economic Figures Estimated Growth of Main GDP Components 2007 19 Source: Ministry of Finance

  20. Balances Press for desired slide or continue: 21 Gross Public Debt 22 Budget Deficit ; General Government Expenditure 23 Current Account ; Net Foreign Debt 24 Gross Tax Burden Back to Contents

  21. Balances A responsible fiscal policy continues to lead the reduction of the local debt Gross Public Debt (as percentage of GDP) 21 Source: Ministry of Finance

  22. Balances 52.2% 51.5% 51.1% 2.9% is the planned deficit (Expected: 0.5%) 50.0% 49.2% 48.4% 47.4% 46.8% 45.4% Budget Deficit and General Government Expenditure (Both as percentage of GDP) $5.6 billion surplus (1st half 2007) is $12b more than needed to achieve a 2.9% goal 22 Source: Ministry of Finance, July 2007

  23. Balances Current Account and Net Foreign Debt (As percentage of GDP) Debt reduction and decreased immigration turned deficit into surplus in 2003 Net Foreign Debt Current Account 23 Source: Bank of Israel

  24. Balances Gross Tax Burden (As percentage of GDP) Income and corporate taxes are constantly being reduced 24 Source: Ministry of Finance

  25. International comparisons and additional data Press for desired slide or continue: 26 ICT and Business Sector’s Product Capital raised by VC funds and High Tech Companies 27 Central Bank Interest Rates 28 NASDAQ and Tel Aviv 100 Indices 29 Israel’s Credit Rating 30 Global Competitiveness Index 31 GCI: Selected Issues 32 33 Business Competitiveness Index ; Network Readiness Index 34 Dividend Distribute in past years Back to Contents

  26. Additional data Communications percentage from high-tech capital raised in a growing trend Israel’s ICT* and Business Sector’s Product (Annual % change) * Information and Communication Technology Source: Central Bureau of Statistics, Israel Venture Capital 26

  27. Additional data Capital Raised by Israeli Venture Capital Funds* and High Tech Companies (M$) 2007: High tech investments could reach a five year record of $1.7 billion *In vintage year: Year of first closing or first investment. Source: IVC – Israel Venture Capital Research Center; H1: 1st half 27

  28. Additional data Central Bank Interest Rates Israel vs. U.S.A The latest FF rate 0.5 basis points decrease brings it close to the BOI rate Currently: 4.75% Bank of Israel Rate Currently: 4.0% Federal Reserve Rate 2004 2005 2006 2007 28 Source: Bank of Israel (BOI), Federal Reserve

  29. Additional data Nasdaq Index & Tel Aviv 100 (monthly average) Israel stock exchange achieved an 18% yield, ranking 13th in the world 29 Source: Tel Aviv Stock Exchange (TASE) and the Ministry of Finance.

  30. Additional data A1/A+ A2/A A3/A- Baa1/BBB+ Baa2/BBB Baa3 /BBB- Israel’s Credit Rating 1992-2007 FTSE upgrades Israel from “developing” to “developed” market status Source: Credit Rating Agencies, Accountant General FTSE – Financial Times Stock Exchange 30

  31. Additional data Israel Ranks 15 Out of 125 Countries (2005 Rank was 23) 1 Global Competitiveness Index, 2006 4 6 8 10 15 18 21 24 28 34 42 47 48 58 59 31 Source: World Economic Forum, Global Competitiveness Index, 2006

  32. Additional data Global Competitiveness Index, 2006SELECTED CATEGORIES Venture Capital Availability Technological Readiness Quality of Scientific Research Facilities Company Spending on R&D 32 Source: World Economic Forum, Global Competitiveness Index, 2006; Israel Export Institute

  33. Additional data 5.71 (1) 5.58 (5) 5.54 (7) 1 5.45 (9) 2 5 5.35 (11) 8 5.27 (14) 12 5.22 (16) 16 5.14 (18) 19 4.99 (23) 22 4.48 (28) 25 27 4.35 (32) 30 4.19 (38) 36 3.98 (48) 46 3.86 (52) 49 55 64 The business climate is a critical element of sustained economic growth Network Readiness Index Business Competitiveness Index Source: World Economic Forum, Global Competitiveness Index, 2006; Global Information Technology Report GCI: Provides a holistic overview of factors critical to productivity and competitiveness [LINK TO SITE] NRI: Measures the level of ICT (information and communication technologies) development of nations [LINK TO SITE] 33

  34. Additional data Dividend Distribution in the Past Years(NIS Millions) The Israeli market continues to appeal to investors despite global competition 34 Source: Tel Aviv Stock Exchange

  35. Israel and the OECD Press for desired slide or continue: 36 Real GDP growth in 2006-7 37 Nominal GDP growth in 2006-7 38 Unemployment Rate in 2006-7 39 GDP per Capita in 2006 40 GDP Based on PPP per Capita in 2005 (OECD) Back to Contents

  36. Israel and the OECD 06’ 07’ OECD has invited Israel to discussions for membership of the organization… Real GDP Growth(Annual percentage of change, partial list) 5.4% 5.1% 3.2% 2.7% 35 Source: OECD and the Ministry of Finance, Israel

  37. Israel and the OECD 06’ 07’ .. for it shares the same values of open market economy as OECD members … Nominal GDP Growth in 2006 (Annual percent of change, partial list) 7.5% 5.9% 5.4% 4.8% 37 Source: OECD and the Ministry of Finance, Israel

  38. Israel and the OECD 2006 2007 H1 Unemployment Rate (average) ...and ranks among the world's leading countries with respect to scientists, engineers, high-tech start-ups and R&D spending per capita. 8.4% 7.8% 5.9% 7.5% 7.1% 5.6% Source: OECD, and the Central Bureau of Statistics, Israel H1: 1st half 38

  39. Israel and the OECD Source: IMF, Ministry of Finance Countries that have been invited for open discussions for joining the OECD. GDP (based on purchasing-power-parity (PPP) ) per capita, in 2006, IMF calculation, ($US) In 1996, the OECD approvedIsrael’s request to participate in it’s activities 30,464 23,843 22,677 12,982 12,096 39

  40. Israel and the OECD Israel's GDP per capita ranks it 21st among OECD countries GDP (based on purchasing-power-parity (PPP) ) per capita OECD calculation, 2006 ($US) 32,098 27,688 40 Source and PPP calculated formula: OECD

  41. International Treaties Press for desired slide or continue: 42 Israel’s Free Trade Agreements 43 Avoidance of Double Taxation Agreements 45 Cooperation in Industrial R&D Agreements 46 Protection of Investments Agreements 48 International Organization Memberships Back to Contents

  42. International Treaties USA (1985) Egypt EFTA (1992) Jordan (1995):Bilateral Trade Agreement Turkey (1997) Canada (1997) Mexico (1999) European Union – Association Agreement (2000) Romania (2000) Bulgaria (2002) Israel’s Free Trade Agreements { Both Romania and Bulgaria have recently joined the European Union 42

  43. International Treaties Austria Belarus Belgium Brazil Bulgaria Canada China Czech Republic Croatia Denmark Estonia * Ethiopia Finland France Germany Greece Hungary India Ireland Italy Jamaica Japan Latvia Lithuania Avoidance of Double Taxation Agreements 43 The agreement with Estonia has only been signed initially

  44. International Treaties Switzerland Thailand The Netherlands Turkey Ukraine United Kingdom Uzbekistan USA Luxembourg Mexico Moldova Norway Philippines Portugal * Poland Romania Russia Singapore Slovakia Slovenia * South Africa South Korea Spain Sweden Avoidance of Double Taxation Agreements (con.) 44 * Agreements with Slovenia and Portugal have yet to have been ratified

  45. International Treaties Cooperation in Industrial R&D Agreements Austria India Sweden Belgium Ireland UK Canada Italy USA China Korea Finland Netherlands France Portugal Germany Singapore Hong Kong Spain 45

  46. International Treaties Protection of Investment Agreements Albania Argentina Armenia Belarus Bulgaria Croatia Cyprus Czech Republic El-Salvador Estonia Georgia Germany Hungary India Kazakhstan Korea 46

  47. International Treaties Latvia Lithuania Moldova Poland Romania Slovakia Slovenia Thailand Turkey Turkmenistan Ukraine Uruguay Uzbekistan QIZ Agreement Egypt Jordan 47 Protection of Investment Agreements (con.)

  48. International Treaties International Organization* Memberships: BIS | BSEC (observer) | CE (observer) CERN (observer) |EBRD |FAO | IADB | IAEA IBRD | ICAO | ICC| ICCt (signatory) | ICFTU IDA | IFAD | IFC | IFRCS (observer) | ILO | IMF IMO | Interpol | IOC | IOM | ISO | ITU | OAS (observer) OPCW (signatory) | OSCE (partner) | PCA | UN UNCTAD |UNECE | UNEP | UNESCO | UNHCR UNIDO | UPU | WB |WCO | WFP | WHO | WIPO | WMO WToO | WTrO |WTO |MIGA | OECD (candidate) 48 *Economic Organizations

  49. Relevant Sites Government Institutes: Bank of Israel (BOI) BOI Annual Report (Complete in English) Central Bureau of Statistics Israeli Government Portal Ministry of Finance Israel Securities Authority Ministry of Industry, Trade and Labor OECD Israel Economic News: “The Marker” “Globes” Back to Contents

  50. We welcome your feedback! Contact: Uri Geva International Affairs Department Ministry of Finance, Jerusalem, Israel FinanceIsrael@mof.gov.il Start Again

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