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ECONOMIC HIGHLIGHTS 1 st QUARTER 2008

STATE OF ISRAEL MINISTRY OF FINANCE INTERNATIONAL AFFAIRS DEPARTMENT. ECONOMIC HIGHLIGHTS 1 st QUARTER 2008. April 2008. International Affairs Department Homepage. Contents. Main Characteristics. Economic Figures. Balances. International Comparisons, additional data and industry. Note:

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ECONOMIC HIGHLIGHTS 1 st QUARTER 2008

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  1. STATE OF ISRAELMINISTRY OF FINANCEINTERNATIONAL AFFAIRS DEPARTMENT ECONOMIC HIGHLIGHTS 1st QUARTER 2008 April 2008 International Affairs Department Homepage

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

  3. Israel’s Economy: Main Characteristics • Stable Growth due to a variety of factors, such as private consumption, export and investment. • Rapid Development of Technology & High-Tech Industries. • Entrepreneurial Culture. • Supportive Environment for Businesses. • Investment and R&D Incentives.

  4. EconomicFigures Press for desired slide or continue: 5-6 Main Indicators and Forecast GDP and GDP per Capita 7 8 Growth: Israel compared to the World 9 Major GDP Components 10 Exports of Goods and Services 11 Exports of Goods by Region 12 Imports of Goods and Services 13 Imports of goods by Region 14 Main Trading Partners 15 Foreign Investments Unemployment & Participation Rates 16 17 Newly Employed Persons 18 Inflation Rate Inflation Rate Worldwide 19 Estimates for 2008 20 Back to Contents

  5. Main Economic Indicators and Forecast * Using the estimate NIS made by the Ministry of Finance, Multiplied by Bank of Israel’s average US$-NIS exchange rate for 2007. ** In current prices 5

  6. Main Economic Indicators and Forecast (con.) Sources: Ministry of Finance, Central Bureau of Statistics * Debt by Israelis to factors abroad 6

  7. GDP and GDP per Capita(Annual rate of change (%), in Constant Prices) Growth forecasts for 2008 suggest Israel has yet to achieve its full potential 7 Source: Central Bureau of Statistics, Ministry of Finance

  8. GDP GrowthIsrael compared to the World (Annual rate of change (%), in constant prices) Though affected by worldwide demand, Israel’s growth remains solid Source: Ministry of Finance, Israel Export Institution Projection for 2008: Ministry of Finance; for 2008-10: Israel Export Institute 8

  9. Major GDP Components(Annual rate of change (%), in constant prices) The trend of buying Israeli start-up companies has continued throughout 2007 9 Source: Central Bureau of Statistics, Ministry of Finance

  10. Exports of Goods and Services(B$) Exports continue to rise even though the exchange rate is depreciating. 10 Source: Central Bureau of Statistics

  11. 2006 2007 (USA: 31.4%) Exports of Goods by Region(Excluding diamonds) EU positions itself as a major trade partner with Israel in 2007 (USA: 28%) Source: Central Bureau of Statistics, Bank of Israel, Ministry of Finance Rest of Europe Includes E. . F . T . A . 11

  12. Imports of Goods and Services (B$) 30% growth in vehicle imports in the first 10 months of 2007 12 Source: Central Bureau of Statistics, Ministry of Finance

  13. 2006 2007 (USA: 13.4) Imports of Goods by Region(excluding Diamonds) EU remains strongest source for imports and destination for exports (USA: 14.9%) Source: Central Bureau of Statistics, Bank of Israel, Ministry of Finance Rest of Europe includes E. . F . T . A . 13

  14. 2006 16.8 15.2 EXPORT IMPORT 5.4 4.4 3.5 3.7 3.4 2.8 2.7 2.5 2.2 4.8 4 3.4 3.2 3.1 2.5 2.4 2.3 2.1 2007 I-XI Israel’s Main Trading Partners($US Billions, excluding diamonds) Exports to the US have risen even though the $US-NIS exchange rate has depreciated 14 Source: Central Bureau of Statistics

  15. Foreign Investments (B$) An Avoidance of Double Taxation Agreement has been signed with Portugal. Includes issues such as income on capital, interest and royalties. May assist in attracting Portuguese investors to Israel. 15 Source: Ministry of Finance

  16. Unemployment and Participation Rates by Quarters(Rate of Total Labor Force) 108,000 new employees in 2007, of which 72,000 in a full time position Source: Central Bureau of Statistics 16

  17. Newly Employed Persons(Change in Israeli Employed Persons, in Thousands) Since 2003: Rise in employment for women aged 55-64 and men aged 60-69 17 Source: Ministry of Finance, Bank of Israel

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

  19. Inflation Rate Worldwide (Rate of Change in CPI, end of 2007) The Bank of Israel has reduced its interest rate to 3.25% because of expected world recession 3.4% Sources: Central Bureau of Statistics, OECD 19

  20. Growth of Main GDP Components 2008 2008 Projection 19 Source: Ministry of Finance

  21. Balances Press for desired slide or continue: 22 Gross Public Debt 23 Budget Deficit ; General Government Expenditure 24 Current Account ; Net Foreign Debt 25 Gross Tax Burden Back to Contents

  22. Gross Public Debt (as percentage of GDP) Gross debt, as percentage of GDP may reach 60% in 10 years Source: Ministry of Finance 22

  23. 52.2% 51.2% 51.0% 50.0% 48.1% 48.4% 46.3% 45.6% 45.1% Budget Deficit and General Government Expenditure(Both as percentage of GDP) Tax revenues up by 6.7% in 2007 Source: Ministry of Finance 23

  24. Current Account and Net Foreign Debt(As percentage of GDP) Debt reduction & decreased immigration turned the current account from deficit into surplus since 2003 Net Foreign Debt Current Account 24 Source: Bank of Israel

  25. Gross Tax Burden (As percentage of GDP) Tax burden has been in the vicinity of OECD average since 2003 Source: Ministry of Finance 25

  26. International comparisons and additional data Press for desired slide or continue: 27 ICT and Business Sector’s Product Capital raised by VC funds and High Tech Companies 28 Central Bank Interest Rates 29 NASDAQ and Tel Aviv 100 Indices 30 Israel’s Credit Rating 31 Global Competitiveness Index 32 GCI: Selected Issues 33-4 35 Business Competitiveness Index ; Network Readiness Index 36 Dividend Distribute in past years Back to Contents

  27. Israel’s ICT* and Business Sector’s Product (Annual % change) The strong rise in ICT product derives from extensive R&D funding. 90% of business R&D is transferred to ICT. * Information and Communication Technology Source: Central Bureau of Statistics, Israel Venture Capital, Bank of Israel 27

  28. Capital Raised by Israeli Venture Capital Funds* and High Tech Companies(M$) Capital Raising in the 4th Quarter 2007 – the Highest in 5 years *In vintage year: Year of first closing or first investment. Source: IVC – Israel Venture Capital Research Center; No data regarding the amount of VC capital raised was available by the time of publishing 28

  29. Central Bank Interest RatesIsrael vs. U.S.A Both BOI and the Federal Reserve are lowering rates Bank of Israel Rate Currently: 3.25% U.S. Federal Funds Rate Currently: 2.25% 2005 2006 2007 2004 FF: Federal Funds BOI: Bank of Israel Source: Bank of Israel (BOI), Federal Reserve 29

  30. NASDAQ Index & Tel Aviv 100 (monthly average) Tel Aviv Stock Exchange has implemented an RTGS* system, allowing real time settlement of transactions 30 Source: Tel Aviv Stock Exchange (TASE) and the Ministry of Finance. * Real Time Gross Settlement

  31. A1/A+ A2/A A3/A- Baa1/BBB+ Baa2/BBB Baa3 /BBB- Israel’s Credit Rating 1992-2007 Fitch Ratings raise Israel’s long-term credit from ‘A-’ to ‘A’ 31 Source: Credit Rating Agencies, Accountant General

  32. 1 2 6 9 13 16 17 18 20 22 25 26 27 29 39 58 Global Competitiveness Index, 2007-2008 Israel Ranks 17th Out of 125 Countries Countries that have been invited for open discussions for joining the OECD. 32 Source: World Economic Forum, Global Competitiveness Index, 2007-8

  33. Global Competitiveness Index, 2007/8SELECTED CATEGORIES Venture Capital Availability Availability of Scientists & Engineers RANK RANK Quality of Scientific Research Facilities Company Spending on R&D RANK RANK 33 Source: World Economic Forum, Global Competitiveness Index, 2007-8

  34. Global Competitiveness Index, 2007/8SELECTED CATEGORIES (con.) Strength of Investor Protection Availabilty of Latest Technologies RANK RANK Utility Patents Legal Rights Index RANK RANK 34 Source: World Economic Forum; Global Competitiveness Index, 2007-8

  35. 5.71 (1) 1 5.58 (5) 2 5.54 (7) 5 5.45 (9) 8 12 5.35 (11) 16 5.27 (14) 19 5.22 (16) 22 5.14 (18) 25 27 5.02 (20) 4.48 (28) 30 36 4.41 (30) 46 4.36 (31) 49 3.98 (48) 55 64 3.54 (70) The business climate is a critical element of sustained economic growth Business Competitiveness Index 2007-8 Network Readiness Index 2006-7 Countries that have been invited for open discussions for joining the OECD. 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] 35

  36. Figures from Tel Aviv Stock Exchange The Israeli market continues to appeal to investors despite global competition * End of Year ** Including option realization. Not including exchange-traded fund issues & realizaion by controled companies 36 Source: Tel Aviv Stock Exchange 2007 Annual Report

  37. Israel and the OECD Press for desired slide or continue: 38 Real GDP growth in 2007-8 39 Nominal GDP growth in 2007-8 40 Unemployment Rate in 2007-8 41 GDP Based on PPPper Capita in 2007 (IMF) 42 GDP Based on PPP per Capita in 2006 (OECD) Back to Contents

  38. 07’ 08’ Real GDP Growth(Annual percentage of change, partial list) OECD has given Israel the Roadmap for accession to the organization... 5.3% 4.2% 2.7% 2.7% 38 Source and projections: OECD and the Ministry of Finance, Israel

  39. 07’ 08’ Nominal GDP Growth(Annual percent of change, partial list) .. and is now preparing a preliminary memorandum regarding the readiness level to the organization’s legal instruments. 7.5% 6.7% 5.0% 4.8% 4.7% 39 Source: OECD and the Ministry of Finance, Israel

  40. 08’ 07’ 08’ 07’ 08’ 07’ 08’ 07’ Unemployment Rate(average) Israel therefore has created a professional “steering group” to prepare the memorandum. 40 Source: OECD, Central Bureau of Statistics, Israel

  41. 31,768 23,843 22,677 12,982 12,096 GDPPer Capitabased on purchasing-power-parity (PPP) 2007, (in $US) Israel has been accepted to OECD’s development center – which is in charge of OECD – non-member developing countries relations IMF Calculation, 2007 Source: IMF, Ministry of Finance Countries that have been invited, as well as Israel, for open discussions for joining the OECD. 41

  42. GDP per capita based on purchasing-power-parity (PPP) 2006, (in $US) Private expenditure per capita has grown by 4.8% in 2007 OECD Calculation, 2006 32,098 25,762 42 Source: OECD, and the Central Bureau of Statistics, Israel

  43. International Treaties Press for desired slide or continue: 44 Israel’s Free Trade Agreements 45-6 Avoidance of Double Taxation Agreements 47 Cooperation in Industrial R&D Agreements 48-9 Protection of Investments Agreements 50 International Organization Memberships Back to Contents

  44. ( ) Includes Romania and Bulgaria which have recently joined the EU Israel’s Free Trade Agreements 2004 Egypt 1985 USA 2007 MERCOSUR 1992 EFTA (1992) Jordan (1995): 1995 Turkey (1997) 1997 1997 Canada (1997) Mexico (1999) 1999 2000 European Union (Association Agreement) 44

  45. 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 45 * The agreement with Estonia has only been signed initially

  46. 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.) * The agreement with Portugal has been recently ratified 46

  47. 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 47

  48. Protection of Investment Agreements Albania Argentina Armenia Belarus Bulgaria Croatia Cyprus Czech Republic El-Salvador Estonia Georgia Germany Hungary India Kazakhstan Korea 48

  49. Latvia Lithuania Moldova Poland Romania Slovakia Slovenia Thailand Turkey Turkmenistan Ukraine Uruguay Uzbekistan QIZ Agreement Egypt Jordan Protection of Investment Agreements (con.) 49

  50. 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 | MIGA OAS (observer) | OECD (candidate) | OPCW (signatory) OSCE (partner) | PCA | UN | UNCTAD |UNECE | UNEP UNESCO | UNHCR | UNIDO | UPU | WB |WCO | WFP | WHO WIPO | WMO | WTOO | WTRO | WTO 50 *Economic Organizations

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