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The Israeli Economy: Still withstanding adverse global economic shocks December 2012

The Israeli Economy: Still withstanding adverse global economic shocks December 2012. The Israeli economy has experienced a drop in the GDP growth rate from over 5% to about 3%. Starting from mid-2013, natural gas will have a positive impact on Israel’s growth rate.

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The Israeli Economy: Still withstanding adverse global economic shocks December 2012

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  1. The Israeli Economy: Still withstanding adverse global economic shocks December2012

  2. The Israeli economy has experienced a drop in the GDP growth rate from over 5% to about 3%

  3. Starting from mid-2013, natural gas will have a positive impact on Israel’s growth rate

  4. One of Israel’s advantages is that it is a world leader in R&D and high-tech In 2009, 62% of Israel’s civilian R&D spending (US$4.7bn) took place in Israeli foreign owned companies. In addition, 92% of exported R&D services (US$3.4bn) originated from these companies. 4

  5. In “good periods”, Israel’s high-tech electronic goods exports tend to surge upwards more substantially than high-tech activity in the US 5

  6. Exports of high-tech services have grown substantially and are now equivalent in volume to the export of high-tech goods 6

  7. A balanced current account. There is no net foreign debt and there is a high level of FX reserves 7

  8. FDI inflows have seen a rebound, but foreign party’s portfolio outflows have increased 8

  9. Due to strong economic fundamentals, Israel was not affected in a substantially negative way by the ongoing series of global financial and economic shocks since 2007 • Are they still valid? • A high savings rate. Yes • A low level of housing supply. Yes, but not as extreme as in the past • A conservative banking system. Yes • Exports based on high-tech (non-consumer), along with greater global diversification of trade. Yes • Strong external accounts. Yes • Prudent fiscal policy. Not sure at the moment 9

  10. The resilience of Israel’s private sector is related to a high savings rate Household

  11. The labor force participation rate is low; this has an impact on the Israel’s growth potential and on the dependency ratio

  12. Israel’s unemployment rate is low; slow GDP growth is likely to result in an increase of unemployment in 2013

  13. The global crisis has had a modest impact on fiscal performance; Defense, social issues and GDP growth will affect future performance

  14. An undesired change in the debt/GDP trend

  15. The BoI adopted a flexible approach towards inflation targeting

  16. Residential construction has come out of a cyclical low, recovered quickly, and contributed to growth in 2010-2011 Immigration wave

  17. Housing prices peaked; Are the current market dynamics sufficient in order to sustain a gradual decline of prices?

  18. The rebound of housing prices started due to a shortage of supply; demand side factors contributed to the pace of price increases

  19. The rebound of housing prices started due to a shortage of supply; demand side factors contributed to the pace of price increases

  20. Despite a substantial increase in Israeli mortgage credit during 2007-2011, household leverage is still comparatively modest

  21. Israeli mortgage credit characteristics have been much more conservative than in other developed economies

  22. Risks to the forecasts • A Western world led global recession with renewed volatility in global financial markets. • Changes in the regional geopolitical outlook. • A prolonged deterioration of the security situation. • A regulatory and risk aversion led credit crunch in Israel

  23. The Israeli Economy: Still withstanding adverse global economic shocks December 2012

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