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Bank of Israel Annual Report 2008. April 19, 2009. 2008: A Turning Point.

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Bank of israel annual report 2008
Bank of IsraelAnnual Report 2008

April 19, 2009


2008 a turning point
2008: A Turning Point

Following five years of fast growth, in the second half of 2008 the economy reached a turning point, and the economy went into a recession as a result of the worsening global financial crisis and its increased effects on the local economy.

In the first half of the year the economy continued the same trends that had typified the fast growth period:

High level of economic activity

Low rate of unemployment

Surplus of the current account

High savings rate

Reduction in the debt/GDP ratio

High profits in the business sector

In the last quarter of the year the economy entered a recession:

Sharp decreases in exports and tax revenues

Reduction in private consumption

Labor market: employment expansion came to a halt, wages fell and unemployment began to rise

Inflation turnaround:

Until September – high, as a result of rising world oil and commodities prices and excess demand

After September – dramatic decline as a result of falling world prices and a moderation of the excess demand

2


2008 a turning point cont
2008: A Turning Point (cont.)

3

  • Accelerated rates of inflation in the middle of the year as a result of the closed output gap and increased commodity prices; monetary policy at the time dealt with curbing the rise in inflation.

  • With the worsening of the global crisis since September and the drop in inflation, the interest rate has been reduced dramatically to an unprecedented level in Israel’s history. The Bank of Israel has purchased considerable sums of foreign currency in order to increase the country’s reserves and as a measure to deal with the accelerated currency appreciation; In February 2009 the Bank of Israel began to purchase government bonds to ease credit conditions.

  • The shock to Israel’s financial system was considerable, yet comparatively moderate: Stocks and private bonds fell and spreads in the credit market rose considerably.

    • Banks demonstrated stability

    • The main impact occurred in the non-bank credit market

  • The budget deficit grew and the decline in the debt/GDP ratio slowed as a result of the slowdown in activity and drops in the capital market, which affected tax revenues, and due to further tax reductions.


Gdp growth rates in israel were higher than in the advanced economies
GDP Growth Rates in Israel Were Higher than in the Advanced Economies

4

%

-The quarterly data is the seasonally adjusted rate of change from the previous quarter at an annualized rate.

-The growth rate for the advanced economies is a simple average of their individual growth rates (excluding

Luxembourg and Iceland).

Source: OECD Data and the Bank of Israel


Steep decline in exports and a drop in private consumption
Steep Decline in Exports and a Drop in Private Consumption Economies

5

%

- The quarterly data is the seasonally adjusted rate of change from the previous quarter at an annualized rate.

- Exports of goods and services excluding support payments

Source: CBS


Current account of balance of payments as percentage of gdp 2000 2008
Current Account of Balance of Payments Economiesas Percentage of GDP, 2000-2008

6

%

Source: Balance of payments, CBS


Budget deficit percentage of gdp 2000 2009
Budget Deficit Economies*(Percentage of GDP, 2000-2009**)

%

*Percent of GDP; excluding credit extended. The data refers 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.


Actual and expected rates of inflation
Actual and Expected Rates of Inflation Economies

8

%

The data of “Inflation Expectations” (both annually and quarterly) is the average of the relevant time period.

The quarterly data of inflation is the quarterly average of the Consumer Price Index over the last 12 months.

Source: Bank of Israel



Five years of growth what have we gained
Five Years of Growth: What Have We Gained? Economies

  • A rise of 10% in real per capita GDP since 2000 and 15% compared with 2001-02

  • Sustained surplus in the current account

  • A decline in absolute poverty levels, in almost all population groups

  • Increase in the participation and employment levels and a decrease in unemployment in all population groups

  • Improved fiscal environment: reduction in the budget deficit, public debt and public expenditure as a percentage of GDP accompanied by tax cuts

    What haven’t we gained?

  • Cyclically adjusted, the declines in deficits have been modest

  • Per capita GDP relative to the U.S. – return to 60% (level preceding the recession)

  • An increase in relative poverty (although it declined in the last two years)


Per capita GDP Economies

Per capita GDP

(2008 prices, NIS thousands)

Per capita GDPin Israel Relative to the Advanced Economies1 based on Purchasing Power Parities

2(14.9%)

1.The “Per capita GDP” in the Advanced Economies of the OECD excluding Luxembourg and Iceland is the simple

average of their individual per capita GDP.

2. Rate of change between 2001-2002 and 2008


Overall Unemployment Rate and the Rate for those with 0-10 Years of Education Dropped to Low Levels

Overall

0-10 Years of Education

%

%

Source: CBS, Labor Force Surveys


Rate of Relative Poverty by Group, Years of Education Dropped to Low Levelsa 1997, 2003 and 2007/8b

By education level of head of household (years of schooling)

%

%

By family size

%

By population group

%

By number of earners

a Not including Arabs of Jerusalem

b The data are based on a survey conducted between July 2007 and June 2008

SOURCE: Based on data from Central Bureau of Statistics and Income Surveys


Rate of Absolute Poverty by Group, Years of Education Dropped to Low Levelsa 1997, 2003 and 2007/8b

By education level of head of household (years of schooling)

%

By family size

%

By number of earners

%

By population group

%

a Not including Arabs of Jerusalem

b The data are based on a survey conducted between July 2007 and June 2008

SOURCE: Based on data from Central Bureau of Statistics and Income Surveys


Fiscal Indicators Years of Education Dropped to Low Levels

Public Expenditure as a Percentage of GDP

Debt/GDP Ratio (gross)

%

%

  • Source: Bank of Israel


The 2001 03 recession and the current recession
The 2001-03 Recession and the Current Recession Years of Education Dropped to Low Levels

16


Unindexed 5 year government bond yields 01 2000 02 2009
Unindexed 5-Year Government Bond Yields Years of Education Dropped to Low Levels(01/2000-02/2009)

17

%

Current Recession

Previous Recession 2001-2003

%

5 Year Israel-U.S. Government Bond Spread* (01/2000-02/2009)

Previous Recession 2001-2003

Current Recession

*Spread between the yields of the 5 year Shahar (derived from the 0-curve) and the 5 year unindexed U.S. Treasury bond.

Source: Bank of Israel and the Federal Reserve Bank of St. Louis


Interest rates of the bank of israel the fed and the ecb 2000 2009
Interest Rates of the Bank of Israel, Years of Education Dropped to Low Levelsthe Fed and the ECB(2000-2009)

18

%

Previous Recession 2001-2003

Current Recession

Source: Bank of Israel Research Department and OECD Statistics


19 Years of Education Dropped to Low Levels

Ratio of Credit in the Market to Business Sector Product

(quarterly data, current prices)

Current Recession

Previous Recession 2001-2003

Source: Bank of Israel


Banking system indicators in israel
Banking System Indicators in Israel Years of Education Dropped to Low Levels

20

Capital Adequacy Ratio

Rate of Loan Loss Provision

- Data refers to the end of the relevant period.

Source: Bank of Israel


The nominal and the real exchange rate 2009 1997

21 Years of Education Dropped to Low Levels

The Nominal and the Real Exchange Rate2009 - 1997

NIS

Shekel / Dollar Exchange Rate01/97-04/09))

Previous Recession 2001-2003

Current Recession

The Real Exchange Rate by Trading Partners(100=01/1997, 01/1997-04/2009)

Previous Recession 2001-2003

119.8

Current Recession

  • A rise in the index indicates depreciation.

  • The figure for April 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 April 2009, Bank of Israel calculations.


Forecast
Forecast Years of Education Dropped to Low Levels

22


Development of forecasts of world economic activity in 2009

23 Years of Education Dropped to Low Levels

Development of Forecasts of World Economic Activity in 2009

%

* Forecast for world trade in 2009 is a Bank of Israel estimate.

Source: IMF – World Economic Outlook


24 Years of Education Dropped to Low Levels

Annual GDP Growth Rates2008-2010F

%

3.5 to 4.5

1.5 to 2.5

1.5 to 2.5

-0.5 to -1.0

*Forecasts for 2009 and 2010 are given as a possible range.

Source: IMF – World Economic Outlook 03/2009


Forecast for main macroeconomic indicators 2008 2010
Forecast for Main Macroeconomic Indicators (2008-2010) Years of Education Dropped to Low Levels

25

Unless otherwise indicated the figures are rates of change.

Source: Bank of Israel Research Department


Thank you
Thank you Years of Education Dropped to Low Levels

26


Starting conditions situation on the eve of the recession
Starting Conditions: Situation on the Eve of the Recession Years of Education Dropped to Low Levels

27

*The figure refers to the condition on the eve of the recession (3rd quarter of 2000 and the 2nd quarter of 2008)

**Annual data

Source: Bank of Israel


Current account of the balance of payments percent of gdp
Current Account of the Balance of Payments Years of Education Dropped to Low Levels(percent of GDP)

28

%

Source: CBS, Balance of Payments


Real wages per employee post for the overall population and for those with 0 10 years of education

29 Years of Education Dropped to Low Levels

Real Wages per Employee Post* for the Overall Population and for those with 0-10 Years of Education

NIS

0-10 Year of Education

Overall

NIS

*Real wages per employee posts at 2004 prices

Source: CBS


30 Years of Education Dropped to Low Levels

Overall Employment Levels and Employment Levels for those with 0-10 Years of Education

%

Overall

%

0-10 Years of Education

Source: CBS, Labor Force Surveys


31 Years of Education Dropped to Low Levels

Annual GDP Growth Rates

2000 – 2010*

%

31

*Bank of Israel forecasts

Source: CBS and the Bank of Israel


Actual and expected rates of inflation1
Actual and Expected Rates of Inflation Years of Education Dropped to Low Levels

37

%

  • - The quarterly data is the seasonally adjusted rate of change from the previous quarter annualized.

  • Inflation expectation are a 12 month average derived from the capital markets.

  • Source: Bank of Israel


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