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Ministry of Finance . January 2011 State of Israel Ministry of Finance. Recent Developments and Outlook. Recent Economic Developments. GDP Growth Quarter-on-Quarter at Annual Rate, 2004Q1-2010Q3. Rapid recovery since the second half of 2009. .

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recent developments and outlook

Ministry of Finance

January 2011

State of Israel

Ministry of Finance

Recent Developments

and Outlook

gdp growth quarter on quarter at annual rate 2004q1 2010q3
GDP GrowthQuarter-on-Quarter at Annual Rate, 2004Q1-2010Q3

Rapid recovery since the second half of 2009.


GDP Growth in Israel, USA, UK and the Euro AreaThe 1st, 2nd, 3rd Quarters of 2010 at annual rate

Source: EuroStat, BEA, CBS.

the global economic crises had a moderate impact on israel
The Global Economic Crises had a Moderate Impact on Israel:
  • A strong starting position:
    • Israel experienced 5 years of high GDP growth led by the private sector
    • Low levels of unemployment in an historical perspective and steady improvement in the participation rate in the last few years
    • Maintaining fiscal discipline
    • A continues surplus in the current account
  • A bubble did not develop in the real estate market
  • The Israeli capital market did not offer complex financial instruments
  • A stable banking system
  • A timely and targeted reaction by policy makers
balance of payments the current account us billions as percent of gdp 2000 2010
Balance of Payments - The Current AccountUS$ Billions & As Percent of GDP, 2000-2010
  • The current account surplus contributed to the
  • appreciation of the shekel.

* 2010 first 3 quarters annualized.

exports and imports of goods us billions per month excl diamonds ships airplanes
Exports and Imports of GoodsUS$ billions per month, excl. diamonds, ships & airplanes
  • Exports recovery began in the second half of 2009, although in recent months exports of goods had slowed.
composition of industrial exports 1995 2010
Composition of Industrial Exports1995-2010

























destination of exports excluding diamonds aircraft ships us billions
Destination of ExportsExcluding diamonds, aircraft & ships, US$ billions

Diversification of export destinations continued during the years 2009-2010

the unemployment and participation rates
The Unemployment and Participation Rates

Since the second half of 2009 there has been a significant decrease in the unemployment rate.

Participation rate

(right axis)

real wages 1999 2010 2004 prices cpi adjusted
Real Wages1999-2010, 2004 prices, CPI-adjusted

In the last decade there has been very little change in real wages.

*Jan – October average, seasonally adjusted.


Housing Starts and Fixed Investment in Residential Construction2000-2010q3

Units Per Q

The increase in building permits led to a rise in housing starts. This is expected to expand supply in the residential market.



BOI Interest Rate, Short-Term Real Interest Rate and Inflation Expectations, 2005-2010

Although the BOI rate is rising, real interest rate remains negative

market indexes january 2006 100 monthly average
Market Indexes,January 2006=100, Monthly Average

Israeli stock and corporate bonds markets exhibit positive correlation with global counterparts.

Source: TASE, Bloomberg

risks to the global economic recovery
Risks to the Global Economic Recovery

Since mid-2009 there are clear indications that the global crisis is subsiding. But global downside risks remain a concern:

  • Deterioration of Global Fiscal Positions.
  • Premature Exit from Accommodative Fiscal and Monetary Policies.
  • Potential of Asset Price Bubbles Abroad.
  • Remaining Stress in the Financial Sector.
  • Imbalances in the Global Economy.
  • Potential for Protectionist Policy.
  • Long Term Effects in the Labor Market.

Israel, as a small and open economy, is largely affected bydevelopments in the global economy.

central government s budget deficit as percent of gdp 2000 2014
Central Government's Budget Deficitas Percent of GDP, 2000-2014
  • The budget deficit in 2010 was 3.7 % GDP (compared to budget ceiling of 5.5%).
  • According to two-year budget, the deficit is projected to be close to the ceiling in 2011-2012.

Source: CBS, MOF



fiscal rule expenditure side
Fiscal Rule – Expenditure Side
  • Adoption of the New Fiscal Rule into the 2011-2012 Budget
    • Spending growth cap calculated as follows:
    • An increase in expenditure depends on a decrease in the Debt/GDP ratio.
    • When the Debt/GDP ratio declines to 60%, expenditures can be raised by the average real GDP growth of the last 10 years.

Debt/GDP Target

(Maastricht Criteria)


Current Debt/ GDP

Average GDP growth in the last 10 years










Fiscal Rule - Deficit Ceiling
  • Reduction of Deficit/ GDP ratio according to a deficit ceiling law.

The government must implement the more effective of the two rules.


Income and Consumption Taxes

)Billion of Nis, December 2010 prices, Seasonally adjusted(

Taxation revenue in 2010 was 195.4 BN NIS, 12.3 BN NIS higher than planned.

general government expenditure as percent of gdp 1995 2010
General Government Expenditureas Percent of GDP, 1995-2010

The government cut expenditure in order to divert resources to the private sector.

* Weighted average; Source: OECD

general government civil expenditure percent of gdp 2009
General Government Civil Expenditure*,Percent of GDP, 2009

*General government expenditure excluding military expenditure.

Source: Sipri Yearbook 2010, OECD.

public and government debt as percent of gdp 1995 2010
Public and Government Debt, as percent of GDP, 1995-2010

Strong fiscal discipline and high growth rates in 2003-2008 led to a reduction in the Debt/GDP ratio.

*MOF Estimate.

increase in public debt between 2007 2010 as percentage of gdp
Increase in Public Debt between 2007 & 2010, as Percentage of GDP

The rise in the Israeli public debt is relatively moderate.The current public debt-GDP ratio is close to OECD average.

Maastricht: 60% Debt

Source: OECD, Israel 2010 - MOF estimates

public debt as percent of gdp 2010 2025
Public Debt, as percent of GDP, 2010-2025

Debt GDP ratio is expected to decline steadily to 60% around 2020.

key economic policies
Key Economic Policies
  • Internal Growth Engines
    • Insuring the Future of Advanced Sectors
    • Human Capital - Maintaining the High Level of Education
    • Improving Infrastructure
  • Active Labor Market Policies
  • Improving the Public Sector's Efficiency
  • Responsible Fiscal Policy
    • Bi-annual Budget
    • Fiscal Rule