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ECONOMIC HIGHLIGHTS 4 th QUARTER 2008

STATE OF ISRAEL MINISTRY OF FINANCE INTERNATIONAL AFFAIRS DEPARTMENT. ECONOMIC HIGHLIGHTS 4 th QUARTER 2008. February 2009. International Affairs Department. Contents. Main Characteristics. About the Economic Crisis and Operation “Cast Lead”. Economic Figures. Balances. Note:

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ECONOMIC HIGHLIGHTS 4 th QUARTER 2008

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  1. STATE OF ISRAELMINISTRY OF FINANCEINTERNATIONAL AFFAIRS DEPARTMENT ECONOMIC HIGHLIGHTS 4th QUARTER 2008 February 2009 International Affairs Department

  2. Contents • Main Characteristics • About the Economic Crisis and Operation “Cast Lead” • Economic Figures • Balances Note: You can return to the beginning of each chapter by clicking this symbols on the top of each slide. • International Comparisons • Israel and the OECD • International Treaties • Relevant Sites

  3. Israel’s Economy: Main Characteristics • Highly Educated Population. • Rapid Development of Technology & High-Tech Industries. • Entrepreneurial Culture. • Open Economy. • High Trade intensity.

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

  5. Operation "Cast Lead" and the World Economic Crisis The economic indicators of the 3rd and 4th quarter of 2008, presented here throughout the presentation, show that the global crisis has started affecting the Israeli market. Initiatives such as the acceleration program, the pension safety net and the monetary program to increase liquidity are all aimed to offer new jobs, to protect private savings and to promote continuous growth in Israel. The impact of operation "Cast Lead" on Israel’s economy has been limited as most businesses in Israel’s southwest, near the Gaza strip, continued to operate. Israel’s financial and industrial center, located out of the rocket range, continued to operate in full scale. The ports and other trade facilities continued to operate as usual, ensuring the flow of goods in and out of the country were running smoothly. This Issue of "Economic Highlights" offers you a review of the 3rd and 4th quarter of 2008. A review of Israel's economy in 2008 and the full economic impacts of "Cast lead" will be presented in our next issue. 5

  6. Main Economic Indicators *Using public exchange rate. *** Based on the 3rd quarter of 2008. ** In current prices 6

  7. Main Economic Indicators (con.) Source: Ministry of Finance, Central Bureau of Statistics 7

  8. GDP and GDP per Capita(Annual rate of change (%), in Constant Prices) In the past few years, Israel’s economy has enjoyed high growth rates. In light of the world economic crisis, Israel’s growth has slowed down. * Estimate. Source: Ministry of Finance. 8

  9. GDP GrowthIsrael 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. * Weighted average: US - 40%, Euro area – 42.8%, Japan – 2.7%, UK – 6.5%, Asian Newly Industrialized countries - 8% ** Estimate. Source: Ministry of Finance. 9

  10. Public Consumption grew by 2.9% in 2008. Private Consumption grew by 3.5%. Exports grew by 3.6%. Major GDP Components(Annual rate of change (%), in constant prices) 10 Source: Ministry of Finance

  11. Exports of Goods and Services ($B) In 2008, Exports grew by 3.6%. 11 Source: Central Bureau of Statistics

  12. Exports of Goods by Region(excluding Diamonds) 2007 (USA: 28%) (USA: 28%) 2008 12 Source: Central Bureau of Statistics

  13. 2008 EXPORT IMPORT Israel’s Main Trading Partners(US$ Billions, excluding diamonds) China is becoming a leading trade partner for Israel 2007 13 Source: Central Bureau of Statistics

  14. Net Foreign Investments in Israel (B$) 14 Source: Ministry of Finance

  15. Unemployment and Participation (As % of Total Labor Force) The Acceleration program, announced by the Ministry of Finance, is a package of economic measures designed to accelerate activity in the Israeli economy, with emphasis on the labor market. Source: Central Bureau of Statistics 15

  16. Inflation Rate (Rate of Change in CPI, end of year) The Consumer Price Index (CPI) grew by 3.8% during 2008. 16 Source: Central Bureau of Statistics, Ministry of Finance

  17. Inflation Rate Worldwide (Rate of Change in CPI, end of 2007) Inflationary pressures in Israel have decreased, as a result of the world crisis. The CPI registered negative growth rates in October and November 2008. 3.4% Sources: Central Bureau of Statistics, OECD 17

  18. Growth of Main GDP Components 2008 2008 (Estimated) 18 Source: Ministry of Finance

  19. Balances Press for desired slide or continue: 20 Gross Public Debt 21 Budget Deficit ; General Government Expenditure 22 Current Account ; Net Foreign Debt 23 Gross Tax Burden Back to Contents

  20. Gross Public Debt (as percentage of GDP) Since 2003, the gross public debt has been on a downward trend. Source: Ministry of Finance 20

  21. Budget Deficit and General Government Expenditure General Government Expenditure (% of GDP) Budget Deficit Source: Ministry of Finance 21

  22. Current Account Balance and Net Foreign Debt In 2003, current account turned positive, conversely with the decrease of the net foreign debt. Net Foreign Debt (% of GDP) Current Account Surplus (% of GDP) * As of 30/06/08, as percentage of 2007 GDP. Source: Ministry of Finance. 22

  23. Gross Tax Burden (as % of GDP) Tax burden has been in the vicinity of OECD average since 2003 - - - OECD countries average: 35.9%* Source: Ministry of Finance, OECD *As of 2006 23

  24. International comparisons and additional data Press for desired slide or continue: Central Bank Interest Rates 25 NASDAQ and Tel Aviv 100 Indices 26 Israel’s Credit Rating 27 Global Competitiveness Index 28 Global Competitiveness Index: Selected Issues 29 31 Business Competitiveness Index ; Network Readiness Index Back to Contents

  25. Central Bank Interest RatesIsrael vs. U.S.A Coinciding with the decrease of the FED’s interest rate, BOI interest rate has been steadily decreased during the last quarter of 2008. U.S. Federal Funds Rate Bank of Israel Rate (BOI) 1.00% 0.0% 2007 2008 2009 2006 25 Source: Bank of Israel (BOI), Federal Reserve

  26. NASDAQ & Tel Aviv 100 (monthly average) Tel Aviv 100 reacts to the current events similarly to the NASDAQ, yet less drastically. 26 Source: Tel Aviv Stock Exchange (TASE) and the Ministry of Finance.

  27. A1/A+ A2/A A3/A- Baa1/BBB+ Baa2/BBB Baa3 /BBB- Israel’s Credit Rating 1992-2008 In January 2009, The Credit Rating Agencies Moody's and S&P ReconfirmedIsrael's Credit Ratings Regarding operation "Cast Lead", S&P commented that "We do not expect the conflict with Hamas in Gaza to have significantly damaged the sovereign's creditworthiness". 27 Source: Credit Rating Agencies, Accountant General

  28. 1 2 6 9 16 22 23 24 28 29 32 42 49 51 61 67 Global Competitiveness Index, 2008-2009 Israel Ranks 23rd out of 134 Countries Countries that have been invited for open discussions for joining the OECD. 28 Source: World Economic Forum, Global Competitiveness Index, 2008-9

  29. Global Competitiveness Index, 2008/9SELECTED CATEGORIES Venture Capital Availability Availability of Scientists & Engineers RANK RANK Quality of Scientific Research Institutions Company Spending on R&D RANK RANK 29 Source: World Economic Forum, Global Competitiveness Index, 2008-9

  30. Global Competitiveness Index, 2008/9SELECTED CATEGORIES (con.) Strength of Investor Protection Availability of Latest Technologies RANK RANK Utility Patents Legal Rights Index RANK RANK 30 Source: World Economic Forum; Global Competitiveness Index, 2008-9

  31. 5.78 (1) 1 5.58 (5) 2 5.44 (7) 6 5.43 (9) 9 16 5.31 (11) 22 5.28 (14) 23 5.19 (16) 24 5.18 (18) 28 29 5.12 (20) 4.60 (28) 32 42 4.47 (30) 49 4.35 (34) 51 4.21 (42) 61 67 3.68 (72) Israel’s Rank in Leading Indices Business Competitiveness Index 2008-9 Network Readiness Index (NRI)* 2007-8 Italy USA Chile Japan Israel Spain Ireland Russia France Greece Croatia Finland Estonia Slovenia Switzerland New Zealand Countries that have been invited for open discussions for joining the OECD Source: World Economic Forum; Global Competitiveness Index (GCI), 2006; Global Information Technology Report *NRI: Measures the level of ICT (Information and Communication Technologies) development of nations [LINK TO SITE] **GCI: Provides a holistic overview of factors critical to productivity and competitiveness[LINK TO SITE] 31

  32. Israel and the OECD Press for desired slide or continue: 43 Real GDP growth in 2007-8 44 Unemployment Rate in 2007-8 45 GDP Based on PPP per Capita in 2006 Back to Contents

  33. 07’ 08’ Real GDP Growth(Annual percentage of change, partial list) The global recession has influenced all of the OECD countries growth rates. 5.3%07’ 4.1%08’ 2.6% 1.4% 33 Source and projections: OECD and the Ministry of Finance, Israel

  34. Unemployment Rate(average) While the OECD average unemployment rate grew between 2007 – 2008, Israel’s Unemployment rate decreased by 1.3%. 08’ 07’ 08’07’ Change 07’-08’ 08’ 07’ 08’ 07’ 34 Source: OECD, Ministry of Finance

  35. GDP per capita based on purchasing-power-parity (PPP) 2007, (in US$) 33,294 25,758 35 Source: Economics and Research Department calculations from OECD and the Central Bureau of Statistics data

  36. International Treaties Press for desired slide or continue: 37 Israel’s Free Trade Agreements 38-9 Avoidance of Double Taxation Agreements 40 Cooperation in Industrial R&D Agreements 41-2 Protection of Investments Agreements 43 International Organization Memberships Back to Contents

  37. Israel’s Free Trade Agreements 1985 USA 1999 Mexico European Union (Association Agreement) 1992 EFTA 2000 Turkey 2007 MERCOSUR* 1997 1997 Canada 37 * The agreement with Estonia has only been signed initially

  38. 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 38 * The agreement with Estonia has only been signed initially

  39. 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 39

  40. 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 40

  41. Guatemala India Kazakhstan Korea Latvia Albania Argentina Armenia Azerbaijan Belarus Bulgaria China Croatia Cyprus Czech Republic El-Salvador Estonia Georgia Germany Protection of Investment Agreements 41

  42. Lithuania Moldova Poland Romania Slovakia Slovenia South Africa Thailand Turkey Turkmenistan Ukraine Uruguay Uzbekistan QIZ Agreement Egypt Jordan Protection of Investment Agreements (con.) 42

  43. International Organization* Memberships: BIS | BSEC (observer) | CE (observer) CERN (observer) | EBRD | FAO | IADB | IAEA WBG – IBRD, IFC, IDA, MIGA | ICAO | ICC | ICCT (signatory) | ICFTU | IFAD | IFRCS (observer) | ILO | IMF IMO | Interpol | IOC | IOM | ISO | ITU | OAS (observer) | OECD (candidate) | OPCW (signatory) OSCE (partner) | PCA | UN | UNCTAD |UNECE | UNEP | UNESCO | UNHCR UNIDO | UPU | WCO | WFP | WHO | WIPO | WMO | WTOO WTRO | WTO | ICSID 43 *Economic Organizations

  44. Relevant Sites International Affairs Department Homepage: WWW.FINANCEISRAEL.MOF.GOV.IL Government Institutions: Ministry of Finance OECD Stat Profile on Israel Bank of Israel (BOI) Central Bureau of Statistics Israeli Government Portal Israel Securities Authority Ministry of Industry,Trade and Labor OECD Israel Back to Contents

  45. We welcome your feedback! Contact: Ms. Ravit Friedberg International Affairs Department Ministry of Finance, Jerusalem, Israel FinanceIsrael@mof.gov.il Click here for our website! www.FINANCEISRAEL.mof.gov.il Start Again

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