september 2012 the israeli economy strengths and challenges

September 2012

The Israeli EconomyStrengths and Challenges

• 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 Israeli Economy – 2011 Facts & Figures

The Manufacturers' Association of Israel 2

MainMain

Strengths & Opportunities Strengths & Opportunities

Towards 2013 Towards 2013

The Manufacturers' Association of Israel

3

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

0.8%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

Fin

lan

d

Ru

ssia

Irel

and

Mex

ico

Jap

an

Sw

eden

Ital

y

UK

Ger

man

y

Tu

rkey

Den

mar

k

Net

her

lan

ds

Au

stri

a

Sp

ain

Bel

giu

m

Po

rtu

gal

US

A

Can

ada

Fra

nce

Gre

ece

Sw

itze

rlan

d

So

uth

Afr

ica

New

Zea

lan

d

No

rway

Bra

zil

Sau

di

Isra

el

Au

stra

lia

Po

lan

d

Ind

ia

Ch

ina

Source: IMF October 2010

Developed and selected major emerging market countries,Real GDP growth, 2009

Positive Growth in Israel Vs. Regression in Most Developed Countries


4%

-1%

-4% -4%-5%

-6%

-9%-10%-10%-11%-11%

-12%-12%

-15%-16%

-17%-18%-18%

-21%

Real Industrial Output Change, 2009 compared to 2008

ʺ ʥhʥ́ʤ̋ ʥhʩʣʮʤʯʩʡʤʩʩ́ ʲ ʺ ʤʩʢʥʥʩɦʺ ʥyʣʢʤʡʭʩʬʷʭʩʬʣʡʤʭʩʮʩʩ̫ʥʯʫ̋ ʩ

Relatively Moderate Regression in Israeli Industry during 2008/9 Crisis

Source: OECD, CBS & MAI Economic Research Department


Nominal Change in Average Apartment Price, 1997-2007

Relatively Moderate Increase in Real Estate Prices Before 2008/9 Crisis

Source: Psagot Investment House.


7

Relatively moderate Dismissals During 2008/9 Global CrisisEmployee Jobs in the Business Sector

8 The Manufacturers' Association of Israel

5.4%4.9%

4.2%

3.3%

0.9%

-0.7%

-1.7%-1.8%

0.2%

2.8%

4.5%4.3%4.5%4.3%4.1%4.3%

2.8%2.4%

1.7%

Employee Jobs in Business SectorChange Rates, Each period Compared to the Parallel Period in a Previous Year

80%

30%

7%

15%

6%

11%

Reducing Overtime

At the expense of employees' vacation days

Unpayment vacation

At the expense of employees vacation days

while lowering wages

Reducing job scopes while lowering wages

Efficiency Measures Taken by Industrial CompaniesTowards all Employees, Excluding Management

Employment Flexibility During 2008/9 Crisis

Source: MAI Economic Research Department, Survey - February 2009


Concentrated vacation

Shortened workweek

9

Rapid Growth in Israeli Economy2004 - 2011


GDP GDP per Capita Business Sector GDP

5.0%

3.4%

6.8%

5.1%

3.3%

6.2%5.7%

3.8%

7.0%

5.3%

3.4%

5.9%

4.2%

2.4%

4.7%

0.8%

-0.9%

0.3%

4.8%

2.9%

5.8%

4.8%

2.8%

5.3%

Real Annual Changes

2.6%

0.3%

-1.8%-2.2%

-4.9%

-0.9%

-1.6%

0.5%

1.7%

3.1%

5.0%

2.9%

0.8%

3.6%

2.9%

0.1% 0%

A Surplus in The Balance of Payments Current AccountAs Percentage of GDP

Independent of Outside Funding A Decade of Current Account Surplus

Source: ICBS, 2012 Forecast – MAI’s Economist Research department.


12

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.

Companies & Individuals Lend Money to the World

Source: Interdisciplinary Center (IDC) Herzliya.The Manufacturers' Association of Israel

-70

-60

-50

-40

-30

-20

-10

0

10

20

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Q2 20

09

Q3 20

09

Q4 20

09

Q1 20

10

Q2 20

10

Q3 20

10

Q4 20

10

Q1 20

11

Q2 20

11

Q3 20

11

Q4 20

11

$B

illi

on

s

13

Net External Debt*(-) Sign: the economy is a net lender abroad

Net external debt: External debt less foreign assets in debt instruments (excluding share capital).

14












Export Oriented Growth


7%

41%34% 27% 31%

54%62%

80%

102%

120%

102%

134%

146%

0%

1%

12%

6%

4% 4%11%

15%

26%32%

42%

33%

44% 47%

Industrial Exports

Industrial Production

Export = 42% of Sales

Export Oriented Growth in IndustryReal Cumulative Rate of Change, Since 1998

Export = 31% of Sales

16












The High Tech Sector Contribution to Industrial Growth


2004– 2011

To Industrial Output To Employment in Industry

To Industrial Export

73%

63%

74%

The High Tech Sector Contribution to Industrial Growth in 2004-2011

As Percentage of Total Growth

The Israeli Industry is Undergoing Long term Structural Changes


29%21%

37% 33%

39%

35%

39% 39%

32%43%

24% 28%High Tech

Mixed Tech

Low Tech

ʩhʡʮʩʥhʩ́ʬʹ ʩ̋ʰʹ ʡʸ ʪʩʬʤ̋ ʺ ʸ ʡʥ̡ʤʩʩ́ ʲ ʺ ʤ

Production Distribution Employment Distribution

High Share of ICT in the Business Sector

ICT= Information & Communications Technologies, 2008

Source: Israeli CBS


16.1

13.913.0

12.2

10.49.9 9.69.0 9.0 8.8 8.8 8.2 8.2 8.1 7.8

7.2 7.1 7.1 6.7 6.4 6.3 6.2 5.9 5.8 5.7 5.75.0

3.7

ICT Sector GDP, Out of The Business Sector GDP 2008

2010

15

.7%

19

20












World Leadership in Civilian R&D Investments

Source: Israeli CBS


4.3%3.9%

3.6%3.3% 3.3%

2.7%2.5%

2.2%2.0%

1.8%1.6%

1.3% 1.3%1.1%

Israel is The World Leader in Civilian R&D InvestmentAs Percentage of GDP, 20

201

4.%

Global R&D and Innovation Center


23












Israel

Switzerland

BelgiumGermany

Australia

SwedenIreland

NorwayAustria

Netherlands

Slovak RepublicUnited States

Italy

Czech RepublicPoland

Canada

KoreaHungary

JapanFinland

Estonia

New Zealand

13.011.4

11.211.0

9.79.7

9.48.0

7.55.55.4

4.74.5

4.23.9

3.83.13.02.9

2.21.4

0.8

Househld saving rates - Percentage of disposable household income, 2011High Private Saving Rate in Israel

The Manufacturers' Association of Israel Source: OECD & BOI

24

25












Relatively Low Government Deficit in Israel


Source: IMF, Caesarea Forum, The Israeli Democracy Institute (IDI).

26

11.7%

10.0%

8.1% 8.0%

6.0%

4.6% 4.5% 4.5%3.7%

3.4% 2.9%2.5% 2.4%

1.4%0.8%

0.1%

Israel’s Government Deficit is Relatively LowAs Percent of GDP, 2012

Source: IMF

Continuous Reduction of Public Debt Ratio


Source: Bank of Israel.

27

99.3 97.793.7

84.778.1 77.1 79.5

76.1 74.2 74.2

2012F

Reduction of Public Debt RatioPublic Debt as Percentage of GDP

Relatively Low Public Debt Ratio


Source: IMF, Caesarea Forum, The Israeli Democracy Institute (IDI).

28

229.8%

160.8%

120.1%106.8%105.0%102.9%98.5%

86.3%82.5%81.5%74.2%72.2%68.5%66.2%55.4%

48.6%46.4%35.5%

Relatively Low Public Debt RatioAs percent of GDP, 2011

source: IMF

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.


30












Other Asia US EU

23%

15%

28%

34%

24%

19%

24%

32%

24%

22% 23%

31%

Jan.- July 2012

Distribution of Israel's export of goods by trading blocks,Excluding Diamonds

Diversion of Trade to Asian Countries


41%

70%

14%

24%

32












IrelandChile

GreeceIceland

UKFinland

NetherlandsAustria

IsraelOECD average *

CanadaItaly

NorwaySpain

AustraliaGermanyPortugalBelgium

FranceUS

Japan

13%17%

20%20%

24%25%25%25%25%25%

26%28%28%

30%30%30%

32%34%34%

39%40%

Corporate Tax


INDUSTRIAL COMPANIES WITH EXPORT CAPABILITYINDUSTRIAL COMPANIES WITH EXPORT CAPABILITY2011-12: 15% - 10%

2013-14: 7% - 12.5%2015+: 6% - 12%

INDUSTRIAL COMPANIES WITH EXPORT CAPABILITYINDUSTRIAL COMPANIES WITH EXPORT CAPABILITY2011-12: 15% - 10%

2013-14: 7% - 12.5%2015+: 6% - 12%

2012Corporate Tax

33

Source: OECD. *Simple average of member countries.

Main Main

Challenges Towards 2013Challenges Towards 2013


34

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

13.3%

-0.3%

3.7%

6.3%

10.8%

7.5%8.6%

7.1%

2.8%

-12.0%

14.1%

5.8%4.0%

5.6%

2012 Frcst

2013 Frcst

Volume of World TradeAnnual change, trade in goods

Source: The Economist, 17/4/12

Slowdown in World Trade


Unbalanced Growth Around the World


Developing Asia

Central and Eastern Europe

Latin America

United States

Euro Area Japan

7.8%

5.3%4.5%

1.7%1.5%

-0.7%

7.1%

1.9%

3.4%

2.0%

-0.3%

2.4%

7.5%

2.8%

4.2%

2.3%

0.7%1.5%

2012 Forecast 2013 Forecast

Growth ForecastAnnual GDP growth

Source: IMF World Economic Outlook update, July 2012.