economic highlights 3 rd quarter 2007 state of israel ministry of finance international affairs...
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ECONOMIC HIGHLIGHTS3rd QUARTER 2007
STATE OF ISRAELSTATE OF ISRAELMINISTRY OF FINANCEMINISTRY OF FINANCE
INTERNATIONAL AFFAIRS DEPARTMENTINTERNATIONAL AFFAIRS DEPARTMENT
October 10, 2007
Contents:
Note:
You can return to the beginning of each chapter by clicking the button on the top left side.
Economic Figures
Balances
International Comparisons, additional data and industryIsrael and the OECD
International Treaties
Relevant Sites
Main Characteristics
Israel’s Economy:
• Export Oriented Growth
• Rapid Development of Technology &
High-Tech Industries
• Entrepreneurial Culture
• Supportive Environment for Business
• Investment and R&D Incentives
Main Characteristics
EconomicFigures
GDP and GDP per Capita
Major GDP Components
Growth: Israel compared to the World
Exports of Goods and Services
Exports of Goods by Region
Structure of Industrial Exports
Imports of Goods and Services
Imports of goods by Region
Foreign Investments
Unemployment Rate
Newly Employed Persons
Inflation Rate
Estimates for 2007
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Main Indicators and Forecast5
6
7
8
9
10
11
12
13
15
16
17
18
19
Main Trading Partners14
Criteria20032004200520062007F
GDP (current prices in B$)116.9124.8131.2139.1156.9*
GDP Real Growth Rate (%)2.3%5.2.%5.3%5.2%5.4%**
GDP per Capita (current prices, thousands of $)
17.218.118.920.120.8
GDP per Capita (OECD Calculated by PPP, thousands of $)
2006 data: Israel 21st compared to OECD
26.0527.68
GDP per Capita Growth Rate
(%, Current prices)0.4%3.4%3.5%3.4%3.6%
Exports of Goods & Services (B$)43.552.857.5762.986.7%
Imports of Goods & Services (B$)44.452.357.561.77.9%
Unemployment Rate (%)10.7%10.4%9.0%8.4%7.5%
Inflation Rate ( CPI, end of year)-1.9%1.2%2.4%-0.1%2.4%
Current Account (% of GDP)0.5%0.4%3.3%4.9%
Source: Central Bureau of Statistics, Bank of Israel, Ministry of Finance.
* Using the estimate NIS made by the Ministry of Finance, Multiplied by Bank of Israel’s average US$-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.
Main Economic Indicators and Forecast
Economic Figures
5
Source: Central Bureau of Statistics, Ministry of Finance
8.0
4.6
-0.9
-2.9
-0.9
-2.9
2.3
0.4
5.2
3.4
5.3
3.5
5.2
3.4
5.4
3.6
-5.0
-3.0
-1.0
1.0
3.0
5.0
7.0
9.0
2000 2001 2002 2003 2004 2005 2006 2007F
GDP GDP per Capita
GDP and GDP per Capita (Annual rate of change (%), in Constant Prices)
Economic Figures
6
The market has made a quick recovery from the northern conflict
GDP Growth - Israel compared to the World (Annual rate of change (%), in constant prices)
1.6%
-0.9%
1.9%
-0.9%
2.7%2.3%
4.1%
5.2%
3.5%
5.3%
3.9%
5.2%
3.3%
5.4%
3.4%
4.2%
3.3%
4.0%
3.3%
4.1%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
World Growth Israel Growth
Source: Ministry of Finance, Israel Export Institution
Projections for 2007-8: Ministry of Finance; for 2008-9: Israel Export Institute
Economic Figures
7
Private consumption in Israel is a leading factor, as it is worldwide
0.8
5.0
-6.0
-2.3
1.2
-2.3
-5.6
8
5.6
-2.5
-0.4
18.2
4
2.92.3
4.34.5
2.3
10.1
5.9 5.23.7
9.1
6.7
-8
-3
2
7
12
17
2002 2003 2004 2005 2006 2007F
Private Consumption Government Consumption
Investment in Fixed Assets Exports of Goods and Services
Major GDP Components(Annual rate of change (%), in constant prices)
Economic Figures
Source: Central Bureau of Statistics, Ministry of Finance 8
2006 was characterized by sustainable growth in all GDP components
Source: Central Bureau of Statistics
H1: 1st half
Exports of Goods and Services (B$)
27.5
11.8
30.2
13.3
36.6
16.1
40.1
17.4
43.2
19.8
24.2
9.7
0
10
20
30
40
50
60
70
2002 2003 2004 2005 2006 2007 H1Goods Services
Economic Figures
9
Almost all forms of export registered high growth throughout 2006
Exports of Goods by Region(Excluding diamonds)
Source: Central Bureau of Statistics, Bank of Israel, Ministry of Finance
Rest of Europe Includes E.F.T.A.
H1: 1st half
2006 2007 H1
Other6.0%
Latin America3.1%
Africa2.9%
Asia15.2%
Rest of Europe
6.5%
European Union35.8%
North America30.6%
Africa3%
Other5%
Asia15.1%
Rest of Europe
6.8%
European Union32.9%
North America37.5% Of which: USA: 31.4%
Economic Figures
10
In 2006: Exports to the EU rose by 12% and to the US by 27.3%
Structure of Industrial Exports
7,895
15,962 14,862 13,525 14,16617,308 18,794
21,91524,732
8,216
5,1884,731
4,7304,836
4,277
6,3216,694
7,219
0
5,000
10,000
15,000
20,000
25,000
30,000
1995 2000 2001 2002 2003 2004 2005 2006 2007*
US
$ m
illi
on
s
traditional industries
hi-tech industries
35%
65%
23%24%
76%77%
27%
74%
26%27%
74%73%
26%
73%
75%
25%25%
75%
* Jan-Aug, seasonally adjusted, at annual rate.
Economic Figures
11
High Tech and pharmaceuticals rose by 20.6% and 50.7%, respectively, in 2006
Imports of Goods and Services (B$)
31.1
10.8
32.6
11.1
39.5
12.8
43.8
13.7
46.9
14.9
25.2
8.2
0
10
20
30
40
50
60
70
2002 2003 2004 2005 2006 2007 H1
Goods ServicesSource: Central Bureau of Statistics, Ministry of Finance
H1: 1st half
Economic Figures
12
Private vehicle imports comprised 46% of the trade deficit ($2.5 billion)
Imports of Goods by Region 2006 (excluding Diamonds)
Source: Central Bureau of Statistics, Bank of Israel, Ministry of Finance
H1: 1st half
Economic Figures
13
EU remains strongest source for imports and strongest destination for exports
Africa0.7%
Other 16.6%
Asia19%
Rest of Europe
9.9%
European Union36.9%
North America
16.9%Of which: USA: 13.4%
Rest of Europe 9.5%
Africa 0.8%
Asia 20.9%
North America
15.7%
European Union 36%
Other 17%
Of which: USA: 14.6%
2006 2007 H1
Israel’s Main Trading Partners($US Billions)
5.2
9.6
3.2
1.7
2.4
0.9
1.8
1.3
1.6
1.41.8
1.0
1.31.0
1.30.8
1.20.9
1.9
0.2
0
2
4
6
8
10
12
14
16
USAGerm
any
China
The Netherlands
UK ItalyFrance
Turkey
Belgium
Switzerland
14.8
4.9
3.3 3.1 3 2.82.3
2.1 2.1 2
Source: Central Bureau of Statistics; H1: 1st half
Additional data
14
4.7
3.1
1.6
0.9
1.5
0.4
0.9
0.8
1.0
0.6
0.8
0.8
0.7
0.6
0.8
0.5
0.9
0.4
0.6
0.5
0
1
2
3
4
5
6
7
8
USAGermany
ChinaThe Netherlands
ItalyUK France
Turkey
JapanBelgium
7.8
2.7
1.9 1.7 1.6 1.6 1.3 1.3 1.3 1.1
2006
2007 H1
EXPORT
IMPORT
1997 – 2006 has seen a 100% increase in industrial exports
Foreign Investments (B$)
Source: Ministry of Finance
1.7
4.53.1
9.6
5.2
12.3
1.73.2
3.95.4
2
9.1
4.8
9.5
14.2
25.8
9.010.6
0
5
10
15
20
25
30
1998 1999 2000 2002 2003 2004 2005 2006 Jan-Aug2007
Direct Investments
Total Investments
Economic Figures
15
2006 registered nearly one hundred purchases of Israeli technology companies
Unemployment and Participation Rates by Quarters(Rate of Total Labor Force)
Source: Central Bureau of Statistics
9.2%
9.0%8.9% 8.9%
8.8% 8.8%
7.6%
8.3%
7.8%7.7%54.9%
55.1%55.2%
55.6%55.5%
55.8%
56.6%
56.1%
55.5%55.6%
7.0%
7.5%
8.0%
8.5%
9.0%
9.5%
2005Q1
Q2 Q3 Q4 2006Q1
Q2 Q3 Q4 2007Q1
Q254.0%
54.5%
55.0%
55.5%
56.0%
56.5%
57.0%
Unemployment Rate
Participation in the Labour Force
Economic Figures
16
Rapid business sector growth has contributed to the decline in unemployment
-11
30
50
13
42
6
74
- 3
96
25
48
16
62
22
2001 2002 2003 2004 2005 2006 2007 H1
Business Sector Public Sector
Newly Employed Persons in 2006 (Change in Israeli Employed Persons, in Thousands)
Source: Ministry of Finance, Bank of Israel
H1: 1st half
Economic Figures
17
Real wages rose by 1% in 2006 and by 3.6% between January and April 2007
Inflation Rate (Rate of Change in CPI, end of
year)
Source: Central Bureau of Statistics, Ministry of Finance
1.3% 0.0% 1.4%
6.5%
-1.9%
1.2%
2.4%
-0.1%
2.4%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
1999 2000 2001 2002 2003 2004 2005 2006 2007F
Economic Figures
18
Responsible fiscal policy and a strong NIS (vs. the $) have stabilized inflation
CriteriaEstimate for 2007
Real GDP+ 5.4%
Business GDP+ 6.2%
Exports+ 6.7%
Private Consumption+ 5.2%
Government Consumption+ 3.7%
Investment in Fixed Assets+ 9.1%
Source: Ministry of Finance
Estimated Growth of Main GDP Components 2007
Economic Figures
19
Balances
Budget Deficit;
Current Account;
Net Foreign Debt
General Government Expenditure
Gross Public Debt
Gross Tax Burden
Back to Contents
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21
22
23
24
Gross Public Debt (as percentage of GDP)
Source: Ministry of Finance
99.6%
102.0%100.7%
97.0%
87.7%
81.7%
80%
85%
90%
95%
100%
105%
2002 2003 2004 2005 2006 2007F
Balances
21
A responsible fiscal policy continues to lead the reduction of the local debt
Source: Ministry of Finance, July 2007
Budget Deficit and General Government Expenditure (Both as percentage of GDP)
Balances
22
$5.6 billion surplus (1st half 2007) is $12b more than needed to achieve a 2.9% goal
3.7%
2.9%
0.9%
1.9%
5.4%
3.6%
4.2%
0.7%
3.2%
1999 2000 2001 2002 2003 2004 2005 2006 2007
Budget Deficit
Government Expenditure
2.9% is the planned deficit
(Expected: 0.5%)
45.4%46.8%
47.4%
49.2%
51.5%
50.0%
48.4%
51.1%
52.2%
Current Account and Net Foreign Debt (As percentage of GDP)
Source: Bank of Israel
-1.3% -0.6%1.2%
2.3%
3.4%
5.7%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
2001 2002 2003 2004 2005 2006
Balances
23
Debt reduction and decreased immigration turned deficit into surplus in 2003
Current Account
Net Foreign Debt2.8%
0.1%
-2.3%
-5.7%
-9.3%
-16.7%
-24.5%
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
2000 2001 2002 2003 2004 2005 2006
Source: Ministry of Finance
Gross Tax Burden (As percentage of GDP)
37.8%
36.8%
37.0%
38.1%38.2%
37.5%
36.6%36.7%
36.8%
37.2%
36.7%
36%
37%
38%
39%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007F
Balances
24
Income and corporate taxes are constantly being reduced
Internationalcomparisonsand additionaldata
ICT and Business Sector’s Product
Central Bank Interest Rates
NASDAQ and Tel Aviv 100 Indices
Israel’s Credit Rating
Global Competitiveness Index
GCI: Selected Issues
Business Competitiveness Index ;Network Readiness Index
Dividend Distribute in past years
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Capital raised by VC funds and High Tech Companies
26
28
29
30
31
32
27
33
34
Israel’s ICT* and Business Sector’s
Product (Annual % change)
-1.9%
-14.8%
-2.8%
0.7%
3.2%2.3%
7.2%
10.8%
6.5% 5.6% 6.5%
9.9%
-18%
-13%
-8%
-3%
2%
7%
12%
2001 2002 2003 2004 2005 2006
Business ICT
* Information and Communication Technology
Source: Central Bureau of Statistics, Israel Venture Capital
Additional data
26
Communications percentage from high-tech capital raised in a growing trend
Capital Raised by Israeli Venture Capital Funds* and High Tech Companies (M$)
1,438
1,013
2,587
3,092
1,317
1,986
393
1,138
6
1,011
585
1,4651,4601,337
473
1,622
842
0
500
1,000
1,500
2,000
2,500
3,000
3,500
1999 2000 2001 2002 2003 2004 2005 2006 2007H1Venture Capital
High Tech*In vintage year: Year of first closing or first investment.
Source: IVC – Israel Venture Capital Research Center; H1: 1st half
Additional data
27
2007 :High tech investments could reach a five year record of $1.7 billion
Central Bank Interest Rates Israel vs. U.S.A
Source: Bank of Israel (BOI), Federal Reserve
Bank of Israel Rate
Federal Reserve Rate
0%
1%
2%
3%
4%
5%
6%
Ja
n (1
)2 3 4 5 6 7 8 9 1
01
11
2J
an
(1)
2 3 4 5 6 7 8 9 10
11
12
Ja
n (1
)2 3 4 5 6 7 8 9 1
01
11
2J
an
(1)
2 3 4 5 6 7 8 9
Additional data
Currently: 4.0%
Currently: 4.75%
28
2004 2005 2006 2007
The latest FF rate 0.5 basis points decrease brings it close to the BOI rate
Nasdaq Index & Tel Aviv 100 (monthly average)
1000
1500
2000
2500
3000
3500
4000
01/2003
Jul 2003
Jan 2004
Jul 2004
Jan 2005
Jul 2005
Jan 2006
Jul 2006
Jan 2007
200
300
400
500
600
700
800
900
1000
1100
1200
Nasdaq Index (left scale)
Tel Aviv 100 (right scale)
Source: Tel Aviv Stock Exchange (TASE) and the Ministry of Finance.
Additional data
29
Israel stock exchange achieved an 18% yield, ranking 13th in the world
Source: Credit Rating Agencies, Accountant GeneralFTSE – Financial Times Stock Exchange
Israel’s Credit Rating 1992-2007
0
1
2
3
4
5
6
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Moody's A2 Stable S&P A- Stable Fitch A- Stable
A1/A+
A2/A
A3/A-
Baa1/BBB+
Baa2/BBB
Baa3 /BBB-
Additional data
30
FTSE upgrades Israel from “developing” to “developed” market status
Source: World Economic Forum, Global Competitiveness Index, 2006
Israel Ranks 15 Out of 125 Countries (2005 Rank was 23)
5958
4847
3428
2421
1815
108
64
1
42
Additional data
31
Global Competitiveness Index, 2006
Global Competitiveness Index, 2006SELECTED CATEGORIES
23
20
16
13
9
7
5
4
2
1
0 5 10 15 20 25
Japan
India
Germany
Singapore
Hong Kong
Ireland
United Kingdom
Finland
Israel
United States
21
17
14
12
10
8
6
3
2
1
0 5 10 15 20 25
Ireland
Canada
Taiwan
Finland
Denmark
United States
United Kingdom
Israel
Singapore
Sweden
15
14
10
7
6
5
4
3
2
1
0 5 10 15 20
Ireland
India
Singapore
Finland
Germany
Japan
Israel
United Kingdom
United States
Switzerland
Additional data
Venture Capital Availability
Source: World Economic Forum, Global Competitiveness Index, 2006; Israel Export Institute
14
12
11
9
7
6
4
3
2
1
0 5 10 15
France
Taiwan
Singapore
Korea
Israel
Finland
Germany
United States
Japan
Switzerland
Technological Readiness
Quality of Scientific Research Facilities Company Spending on R&D
32
Turkey
Greece
Italy
Spain
Portugal
France
Israel
Germany
Japan
Canada
United Kingdom
United States
Switzerland
Denmark
6455
49
46
30
2725
2219
1612
85
21
36
Additional data
33
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]
5.71 )1(
5.58 )5(5.54 )7(
5.45 )9(
5.35 )11(5.27 )14(
5.22 )16(5.14 )18(
4.99 )23(4.48 )28(
4.35 )32(
4.19 )38(3.98 )48(
3.86 )52(
Network Readiness Index Business Competitiveness
Index
The business climate is a critical element of sustained economic growth
Dividend Distribution in the Past Years(NIS Millions)
2,559
6,196
222210178137106
19,747
14,609
11,917
54%
76%
79%
70%74%
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
2002 2003 2004 2005 2006
30%
40%
50%
60%
70%
80%
90%
Amout of companies distributing dividend
Total dividend distributed (NIS Millions)
Distributing companies – % from totalSource: Tel Aviv Stock Exchange
Additional data
34
The Israeli market continues to appeal to investors despite global competition
Israel and theOECD
Real GDP growth in 2006-7
Nominal GDP growth in 2006-7
Unemployment Rate in 2006-7
GDP per Capita in 2006
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GDP Based on PPP per Capita in 2005 (OECD)
37
38
39
40
36
Real GDP Growth(Annual percentage of change, partial list)
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
Source: OECD and the Ministry of Finance, Israel
Israel and the OECD
5.1%
3.2%
35
2.7%
5.4%
06’ 07’
OECD has invited Israel to discussions for membership of the organization…
Nominal GDP Growth in 2006 (Annual percent of change, partial list)
Source: OECD and the Ministry of Finance, Israel
Israel and the OECD
37
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
5.4%
7.5%
4.8%
5.9%
.. for it shares the same values of open market economy as OECD members …
06’ 07’
Unemployment Rate
(average)
0%
2%
4%
6%
8%
10%
12%
14%
Source: OECD, and the Central Bureau of Statistics, Israel
H1: 1st half
5.9%
8.4%
Israel and the OECD
38
7.8%
0%
2%
4%
6%
8%
10%
12%
5.6%
7.5%7.1%
2006
2007 H1
...and ranks among the world's leading countries with respect to scientists, engineers, high-tech start-ups and R&D spending per capita.
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000GDP (based on purchasing-power-parity
(PPP) ) per capita, in 2006,
IMF calculation, ($US)
Source: IMF, Ministry of Finance
Countries that have been invited for open discussions for joining the OECD.
30,464 23,843
22,677 12,98212,096
Israel and the OECD
39
In 1996, the OECD approved Israel’s request to participate in it’s activities
GDP (based on purchasing-power-parity (PPP) ) per capita
OECD calculation, 2006 ($US)
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
Turkey
Mexico
Poland
Slovak Republic
Hungary
Portugal
Czech Republic
Korea
New Zealand
Israel
Spain
ItalyFrance
Japan
Germ
any
OECD Average
Finland
United Kingdom
Denmark
Switzerland
Ireland
United States
Norway
Luxembourg
Israel and the OECD
Source and PPP calculated formula: OECD
32,098 27,688
40
Israel's GDP per capita ranks it 21st among OECD countries
InternationalTreaties
Israel’s Free Trade Agreements
Avoidance of Double Taxation Agreements
Cooperation in Industrial R&D Agreements
Protection of Investments Agreements
International Organization Memberships
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43
45
46
48
42
Israel’s Free Trade Agreements
USA (1985)
EFTA (1992)
Jordan (1995): Bilateral Trade Agreement
Canada (1997)
Turkey (1997)
Mexico (1999)
Romania (2000)
European Union – Association Agreement (2000)
Bulgaria (2002)
International Treaties
{Both Romania and
Bulgaria have recently joined the European
Union42
Egypt
Avoidance of Double Taxation International Treaties
Agreements
43
Croatia
Denmark
Estonia*
Ethiopia
Finland
France
Germany
Greece
Austria
Belarus
Belgium
Brazil
Bulgaria
Canada
China
Czech Republic
Hungary
India
Ireland
Italy
Jamaica
Japan
Latvia
Lithuania
The agreement with Estonia has only been signed initially
International Treaties
Avoidance of Double Taxation Agreements (con.)
44
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
* Agreements with Slovenia and Portugal have yet to have been ratified
Cooperation in Industrial R&D Agreements
Belgium
Canada
China
France
Hong Kong
Italy
Netherlands
Portugal
Spain
UK
USA
Singapore
Ireland
Sweden
Finland
Germany
IndiaAustria
Korea
International Treaties
45
Protection of Investment Agreements
International Treaties
Albania
Argentina
Armenia
Belarus
Bulgaria
Croatia
Cyprus
Czech Republic
El-Salvador
Estonia
Georgia
Germany
Hungary
India
Kazakhstan
Korea
46
Protection of Investment Agreements
International Treaties
Turkmenistan
Ukraine
Uruguay
Uzbekistan
QIZ Agreement
Egypt
Jordan
Latvia
Lithuania
Moldova
Poland
Romania
Slovakia
Slovenia
Thailand
Turkey47
)con(.
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)
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Relevant SitesGovernment 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”
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Contact:
Uri Geva
International Affairs Department
Ministry of Finance, Jerusalem, Israel
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