research department 1 global economic crisis and the israeli economy herzliya conference dr. karnit...
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1
Research Department
Global Economic Crisis Global Economic Crisis and the Israeli Economyand the Israeli Economy
Herzliya conferenceHerzliya conference
Dr. Karnit FlugDr. Karnit FlugResearch Director, Bank of IsraelResearch Director, Bank of Israel
February 2009February 2009
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Research Department
Global Economic Crisis
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Research Department
Annual Growth Rates 2007-2010F
2.0
8.3
-1.6
3.3
0.5
-0.2
5.2
2.61.1 1.0
3.4
6.3
-2.0
5.3
3.01.6
-4
-2
0
2
4
6
8
10
USA Europe Emerging andDevelopingEconomies
World
2007 2008 2009F 2010F
Source: International Monetary Fund – World Economic Outlook
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Forecast of World Economic Activity in 2009
-3-2-101234567
World Output USA Euro Area Emerging andDevelopingEconomies
World Trade
04-2008 07-2008 10-2008 11-2008 01-2009
Source: IMF – World Economic Outlook
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15
30
45
60
75
90
105
120
135
150
01-2004 07-2004 01-2005 07-2005 01-2006 07-2006 01-2007 07-2007 01-2008 07-2008 01-2009
דולרים
50
65
80
95
110
125
140
Indexed Price of Goods Excluding Oil and the Price of Oil 2004 – 2009 (daily data)
Indexed Price of Goods Excluding Oil (Right Axis)
Price of Oil) Left Axis(
מדד
Source: Bloomberg
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20
30
40
50
60
70
80
90
100
110
120
01-0007-00
01-0107-01
01-0207-02
01-0307-03
01-0407-04
01-0507-05
01-0607-06
01-0707-07
01-0807-08
Israel (Globes)
U.S. (University of Michigan)
Index of Consumer Confidence in the U.S. and Israel
)100 = 2000, -2008 2000(
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The Share Markets: Israel, the US and the Emerging Markets,
(1/6/2006=100, 01/06/2006 – 28/01/2009)
55
65
75
85
95
105
115
125
135
145
155
165
175
Israel (Tel Aviv 100)
EM (EMERGING MARKETS)
NASDAQ
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0
50
100
150
200
250
300
350
400
450
500
550
600
650
700
750
800
5yr CDS EMBI+
654
200
Israel 5 year Credit Default Swap and EMBI+ 6/2003 - 01/2009
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Factors Contributing to the
Exposure/Vulnerability of the Israeli Economy to the Crisis.
•The Israeli economy is highly integrated in the global economy.
•Being a small open economy, growth is highly dependent on exports, particularly high tech. A large percentage of the high tech exports are to the U.S. which is at the epicenter of the crisis.
•Structural changes in the financial system caused the rapid expansion of non-bank credit which contracted sharply as a result of the global financial crisis.
•High debt-to-GDP ratio increases vulnerability and limits the scope for counter-cyclical fiscal policy.
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Factors Increasing the Resilience of the Israeli Economy
•High households savings ratio reduces the dependence of private consumption on credit availability.
•Current account surplus and positive net asset position on the external account.
•High (and rising) foreign exchange reserves.
•Conservative banking system: Relatively high capital adequacy ratio and low rate of non-performing loans at the onset of the crisis.
•No bubble in the real estate market.
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The Israeli Economy
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-40-30-20-1001020304050
Weighted Net Balance of Business-Sector Activity
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Weighted Net Average of all Activity in the Business Sector by Industry
Trade - Net Balance of Sales
-60
-40
-20
0
20
40
60Percent
Manufacturing Industries - Net Balance of Output
-50
-30
-10
10
30
Percent
Construction - Net Balance of Activity
-60
-40
-20
0
20
40
60
PercentHotels-Net Balance of Total Activity
-100
-50
0
50
100
Percent
**לעומת הרביע המקביל אשתקד.
Transport and Communications - Net Balance of Total Activity
-70-50
-30-1010
305070
PercentServices - Net Balance of Total Revenue from Current Activity
-60
-40
-20
0
20
40
60
Percent
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Research Department
Macro Economic ForecastMacro Economic Forecast
20082009F2010FGross Domestic Product4.0-0.22.7Business-Sector Product4.4-0.93.3Private Consumption3.91.13.7Exports (excl. diamonds)9.1-2.44.6Gross Domestic Investment4.1-5.94.2-
Civilian Imports (excl. ship, planes and diamonds)7.5-2.71.6Unemployment Rate6.17.67.6Current Account ($ billions)1.92.04.0
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3.52.5 2.5 2.4 2.6 2.7 2.4 2 1.8 1.8 1.8 1.8 1.8 1.7 1.7 1.7
3.6
2.9
0.3
1.80.4
6.3
-2.7 -2.7
0.4
3.2 3.5 3.4 3.5
2.3
1.0
-1.9
-4
-2
0
2
4
6
8
10
Per capita GDP
Population
4.0
5.15.2
2.30.4-
-0.2
4.2
2.92.8
5.4
7.1
8.9
0.6-
5.2
GDP GrowthGDP Growth (1990-2010*)
•SOURCE: Based on Central Bureau of Statistics data.
*BOI Forecast
5.4
2.7
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Growth Factor Decomposition (Annual Percent Changes)
2000-2008
-6%-4%-2%0%2%4%6%8%
10%12%
Labor Input Capital Stock Total Factor Productivity
* Estimate for 2008 based on the first three quarters.
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-5.0 -4.9
-3.1
-0.9-1.3
-0.8 -1.1 -0.8
1.1
2.13.0
1.0 1.1
2.12.7
5.6
-6
-4
-2
0
2
4
6
8
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009F
2010F
Current Account of Balance of PaymentsCurrent Account of Balance of Paymentsas Percentage of GDP, 1995-2010* (Annual)
•SOURCE: Balance of Payments, Central Bureau of Statistics.
*BOI Forecast
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0
2
4
6
8
10
12
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009F2010F
464748495051525354
Unemployment Rate Employment Rate
%
Employment and Unemployment Rates2000 – 2010*
%
*Bank of Israel forecasts
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Macro Economic Policy
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%
3.6
1.8
3.9
3.0
4.0
3.4
3.02.9
1.6
0.7
4.4
3.8
5.4
3.6
1.9
0.9
0.0
2.1
4.1
0
1
2
3
4
5
6
2000 2001 2002 2003 2004 2005* 2006 2007 2008 2009*
Deficit Target Actual Deficit
Budget Deficit** (Percentage of GDP, 2000-2009**)
*Percent of GDP; excluding credit extended. The data from 2000 refer to the deficit excluding the Bank of Israel’s profits.**BOI forecast for 2009 is based on the budget that has been approved by the government.
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85.1
89.9
99.9
94.3
85.5
79.581.977.6
98.297.6
0
20
40
60
80
100
120
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009F
%Gross Public Debt
(2000-2009*, percentage of GDP)
*Bank of Israel Forecasts
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Research Department
Inflation Over the Past 12 Months, Inflation Targets and Inflation Expectations from the Capital Market
2001-2009.1
-4
-2
0
2
4
6
8
Actual Inflation
10 Year Expectations
1 Year Inflation Expectation
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Research Department
0
1
2
3
4
5
6
Bank of Israel Interest Rate
Fed's Interest Rate
ECB Interest Rate
%
Interest Rates of the Bank of Israel, the Fed and the Interest Rates of the Bank of Israel, the Fed and the European Central Bank European Central Bank (2005-2009)(2005-2009)
*12 month rates, derived from the capital market
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Thank You
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The Nominal and the Real Exchange RateThe Nominal and the Real Exchange Rate2009 -2009 - 19971997
3.0
3.2
3.4
3.6
3.84.0
4.2
4.4
4.6
4.8
5.0
Shekel / Dollar Exchange Rate01/01/1997-31/01/2009
90
95
100
105
110
115
120
125
130
135
The Real Exchange Rate by Trading Partners
)100=01/1997 ,01/1997-01/2009(
114.4
NIS
*The Nis/$ chart is on a daily basis, while the real exchange rate chart is on a monthly basis.
•A rise in the index indicates depreciation.
•The figure for January 2009 is calculated from spot exchange rates known for the half-month, our forecast CPI from the monthly model, and an extrapolation of inflation in the countries whose currencies are in the currency basket.
•SOURCE: IFS data. For October 2008 to January 2009, Bank of Israel calculations.
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0
0.25
0.5
0.75
1
1.25
1.5
1.75
2
Small Medium Large
Financial Constraints According to Industry Weight in the Business Sector
Scale of the severity of the constraint ranges from 0-4.0 – No constraint4 – Finance is a major constraint on expansion