STATE OF ISRAEL MINISTRY OF FINANCE INTERNATIONAL AFFAIRS

STATE OF ISRAEL MINISTRY OF FINANCE INTERNATIONAL AFFAIRS DEPARTMENT ECONOMIC HIGHLIGHTS March 2011, 1 st Quarter 2011 Click to start

Contents Economic Figures Balances International Comparisons Israel and the OECD Note: International Treaties Relevant Sites Contact Us You can return to the beginning of each chapter by clicking the emblem of Israel on the top of each slide.

Economic Figures Main Economic Indicators GDP and Business GDP Growth: Israel compared to the World Major GDP Components Exports of Goods and Services Main Trading Partners Foreign Investments Unemployment & Participation Rates Inflation Rate Worldwide Growth of Main GDP Components 2008 BACK TO CONTENTS

Main Economic Indicators 2009 2010 Q 1 2010 Q 2 2010 Q 3 2010 Q 4 GDP (current prices in $B)* 197. 9 207. 0 50. 7 51. 4 52. 0 52. 9 Real GDP Growth Rate (%) 0. 8% 4. 6% 5. 1% 5. 4% 4. 6% 7. 7% -- -- Criteria GDP per Capita (PPP adjusted)* 28, 581$ GDP per Capita Growth Rate (%, 2005 prices) 29, 404$** -1. 1% 4. 1% 3. 3% 3. 6% 2. 6% 5. 5% Exports (Goods & Services) $B* (As Percentage of GDP) 78. 2 (39. 5%) 88. 94 (43%) 21. 4 (42. 3%) 22. 3 (43. 4%) 22. 5 (43. 2%) 23. 0 (43. 5%) Imports (Goods & Services) $B* (As Percentage of GDP) 73. 8 (37. 3%) 83. 1 (40. 1%) 20. 2 (39. 9%) 20. 6 (40. 2%) 20. 6 (39. 7%) 21. 2 (40. 1%) 7. 6% 6. 9% 6. 5% 6. 6% Unemployment Rate (%) *Current Prices, using a public exchange rate of 1$ = 3. 56 NIS ** Estimated Source: Ministry of Finance, IMF CONTINUE

Main Economic Indicators Criteria Total Gross Debt (% of GDP) Government Expenditure (Percentage of GDP) Current Account Surplus (% of GDP) Inflation Rate (CPI, yearly average) 2007 2008 2009 2010 77. 8% 77. 1% 79. 3% 76. 5% 43. 6% 43. 0% 42. 7% 2. 9% 0. 8% 3. 6% 3. 1% 0. 5% 4. 6% 3. 3% 2. 7% CONTINUE Source: Ministry of Finance

Main Economic Indicators Rating Firm Term - Long AA- Short A-1+ Long A+ Short Fitch A 1 Short Standard & Poor's A 1/A+ Rating Long Moody's Aa 3/AA- Domestic Bonds - Forecast Stable Overseas Bonds Rating A 1 P 1 A A-1 A F 1 All 3 rating firms have reaffirmed Israel’s rating, without any downgrade, during the global economic crisis in 2009. A 2/A A 3/ABaa 1/BBB+ Baa 2/BBB Baa 3/BBB- CONTINUE Source: Ministry of Finance

GDP and Business GDP Annual rate of change (%), in Constant Prices In 2010, Israel has recovered from the global In the 4 th quarter of 2010, Israel economic crisis, and is back to previous years’ experienced exceptional growth rates CONTINUE Source: Ministry of Finance.

GDP Growth Israel compared to Advanced Economies* (Annual rate of change (%), in constant prices) Since 2004, Israel’s growth rate has exceeded the average growth rate of advanced economies. In 2009, as most of the world experienced a decline in GDP, Israel experienced a 0. 8% growth in it’s GDP CONTINUE Source: Ministry of Finance

Major GDP Components (Annual rate of change (%), in constant prices) Global Economic Crisis In 2010, Investment in Fixed Assets and Export of Goods and Services recovered sharply, after they were contracted severely in 2009 due to the economic crisis. CONTINUE Source: Ministry of Finance

Exports of Goods and Services ($B)* Global Economic Crisis * In Current Prices Source: Ministry of Finance CONTINUE

Israel’s Main Trading Partners (US$ Billions) Imports Exports 2009 2010 *Since July 1997 the data on trade with Hong-Kong is added to the data on China Source: Central Bureau of Statistics CONTINUE

Israel’s Main Trading Partners (US$ Billions) Exports Imports CONTINUE Source: Central Bureau of Statistics

Net Foreign Investments in Israel (In $ Billion) Global Economic Crisis * 2006 is exceptional due to a large acquisition by Teva Pharmaceutical Industries Ltd Source: Ministry of Finance CONTINUE

Unemployment and Participation (As % of Total Labor Force) As Israel grows out of the global recession, since the 2 nd quarter of 2009 unemployment is decreasing, hand in hand with an increase in participation rate since the 1 st quarter of 2010. CONTINUE Source: Ministry of Finance

Inflation Rate (Rate of Change in CPI, yearly average) CONTINUE Source: Central Bureau of Statistics, Ministry of Finance

Inflation Rate Worldwide (Annual rate of change in CPI) The Israeli economy demonstrated a high level of stability compared to other countries throughout the global economic crisis CONTINUE Sources: Ministry of Finance, IMF

Growth of Main GDP Components for Previous Year Criteria 2010 Real GDP + 4. 6% Business GDP + 5. 4% Exports + 13. 8% Private Consumption + 1. 4% Public Consumption + 2. 2% Investment in Fixed Assets + 12. 4 % NEXT CHAPTER: BALANCES Source: Ministry of Finance BACK TO CONTENTS

Balances Gross Public Debt Budget Deficit – Target and Execution Budget Deficit and General Government Expenditure Current Account and Net Foreign Debt Gross Tax Burden BACK TO CONTENTS

Gross Public Debt (as percentage of GDP) Since 2003, gross public debt has been on a consistent downward trend, only interrupted by the extraordinary circumstances surrounding the 2009 global economic crisis Global Economic Crisis CONTINUE Source: Ministry of Finance

Budget Deficit – Target and Execution (in NIS million, Current prices) For the first time in its history, Israel enacted a biennial budget for the years 2009 -2010 In both years, Israel came in under budget target. Quarterly Budget Execution Yearly Budget Target CONTINUE Source: Ministry of Finance

Budget Deficit and General Government Expenditure (% of GDP) Budget Deficit (% of GDP) CONTINUE Source: Ministry of Finance

Current Account Balance and Net Foreign Debt Since 2003, the current account balance is positive, and is accompanied by a decrease of net foreign debt Current Account Surplus (% of GDP) Net Foreign Surplus* (% of GDP) *Current Prices, using a public exchange rate of 1$ = 3. 56 NIS Source: Ministry of Finance. CONTINUE

Gross Tax Burden (as % of GDP) OECD countries average: 34. 8% (2008 average) NEXT CHAPTER: INTERNATIONAL COMPARISONS Source: Ministry of Finance, OECD BACK TO CONTENTS

International Comparisons IMD World Competitiveness Yearbook WEF Global Competitive Index Central Bank Interest Rates: Israel and U. S. A NASDAQ and Tel-Aviv 100 (monthly average) BACK TO CONTENTS

IMD World Competitiveness Yearbook 2010 The Institute for Management Development ranked Israel 17 th out of 58 countries for 2010 (Israel was ranked 24 th in 2009) CONTINUE Source: International Institute for Management and Development (IMD), World Competitiveness Yearbook 20 10

IMD World Competitiveness Yearbook 2010 Resilience of the economy Central bank policy Financial skills Entrepreneurship CONTINUE Source: International Institute for Management and Development (IMD), World Competitiveness Yearbook 20 10

IMD World Competitiveness Yearbook 2010 Venture capital Total expenditure on R&D Scientific research Skilled labor CONTINUE Source: International Institute for Management and Development (IMD), World Competitiveness Yearbook 20 10

WEF Global Competitiveness Index 2010 -2011 The World Economic Forum ranked Israel 24 th out of 139 countries for 2010 -2011 CONTINUE Source: World Economic Forum, Global Competitiveness Index, 2010 -2011

WEF Global Competitiveness Index 2010 -2011 Quality of scientific research institutions Utility patents per million population Strength of investor protection Availability of latest technologies CONTINUE Source: World Economic Forum, Global Competitiveness Index, 2010 -2011

WEF Global Competitiveness Index 2009 -2010 Legal rights index Capacity for innovation Nature of competitive advantage Firm-level technology absorption CONTINUE Source: World Economic Forum, Global Competitiveness Index, 2010 -2011

Central Bank Interest Rates: Israel and U. S. A The Bank of Israel was the first in the western world to raise interest since the outburst of the economic crisis. The rate was raised gradually from 0. 5% to 3. 0% Bank of Israel Rate (BOI) U. S. Federal Funds Rate CONTINUE Source: Bank of Israel (BOI), Federal Reserve

NASDAQ & Tel Aviv 100 (monthly average) Tel Aviv 100 corresponds with the NASDAQ to current events NEXT CHAPTER: ISRAEL AND THE OECD Source: Ministry of Finance BACK TO CONTENTS

Israel and the OECD Israel was invited as a full member in the OECD on May 10 th, 2010, and officially joined in September 10 th, 2010. Expenditure on R&D Real GDP Growth GDP per Capita Unemployment BACK TO CONTENTS

Expenditure on R&D (as percentage of GDP, 2008) Israel is ranked 1 st of all OECD countries by expenditure on R&D (research & development) as percentage of GDP (4. 864 %), demonstrating innovation, development and creativity. CONTINUE Source: OECD

Real GDP Growth (3 -year average at end of period) Israel’s 3 -year average growth rate is higher then most OECD members. For Israel’s year-on-year graph, see slide no. 7 CONTINUE Source: OECD

GDP per capita (current prices in US$, current PPP’s, 2008) Although no final data of the years 2009 -2010 exist, it is reasonable to assume a diminishing gap between Israel and the OECD average For Israel’s adjusted PPP GDP Per Capita, see slide no. 4 * Estimated Source: OECD CONTINUE

Unemployment Rate (Average 2006 -2008 or latest available period) Israel’s unemployment grew mildly compared with some OECD members during 2009, with the global economic crisis in background. For Israel’s unemployment, see slide no. 14 NEXT CHAPTER: INTERNATIONAL TREATIES Source: Ministry of Finance, OECD BACK TO CONTENTS

International treaties Israel’s Free Trade Agreements Avoidance of Double Taxation Agreements Cooperation in Industrial R&D Agreements Bilateral Investment Treaties International Organization Memberships BACK TO CONTENTS

Israel’s Free Trade Agreements 1985 USA 1992 EFTA 1997 Turkey 1997 Canada QIZ Agreements Egypt (2004) Jordan (1998) 1999 Mexico 2000 European Union (Association Agreement) 2007 MERCOSUR (Argentina not yet in force) CONTINUE Source: Ministry of Finance

Avoidance of Double Taxation Agreements Austria Croatia Hungary Belarus Denmark India Belgium Estonia Ireland Brazil Ethiopia Italy Bulgaria Finland Jamaica Canada France Japan China Germany Latvia Czech Republic Greece Lithuania CONTINUE Source: Ministry of Finance

Avoidance of Double Taxation Agreements Luxembourg Russia Taiwan Mexico Singapore Thailand Moldova Slovakia Vietnam Norway Slovenia Turkey Netherlands South Africa Ukraine Philippines South Korea United kingdom Portugal Spain Uzbekistan Poland Sweden U. S. A Romania Switzerland Source: Ministry of Finance CONTINUE

Cooperation in Industrial R&D Agreements Austria India Sweden Belgium Ireland United kingdom Canada Italy U. S. A China Korea Victoria (Australia) Finland Netherlands Czech Republic France Portugal Germany Singapore Hong Kong Spain CONTINUE Source: Ministry of Finance

Bilateral Investment Treaties Albania Cyprus Hungary* Argentina Czech Republic India Armenia El Salvador Kazakhstan Azerbaijan Estonia Korea Belarus Ethiopia Latvia Bulgaria Georgia Lithuania China Germany Macedonia* Croatia* Guatemala Moldova * See comments in the Bilateral Investments Treaties page in our website Source: Ministry of Finance CONTINUE

Bilateral Investment Treaties Mongolia South Africa* Montenegro Thailand Peru* Turkey Poland Turkmenistan Romania* Ukraine* Serbia Uzbekistan Slovakia Vietnam* Slovenia* * See comments in the Bilateral Investments Treaties page in our website Source: Ministry of Finance CONTINUE

Main International Economic Organizations Membership: Israel is a member in leading international economic organizations: • United Nations Organizations • United Nations Agencies • World Bank Group • International Monetary Fund • OECD • Regional Organizations • Inter-Governmental Organizations NEXT CHAPTER: RELEVANT SITES Source: Ministry of Finance BACK TO CONTENTS

Relevant Sites Ministry of Finance Bank of Israel Central Bureau of Statistics Israeli Government Portal Israel Securities Authority Ministry of Industry, Trade and Labor CONTACT US BACK TO CONTENTS

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