Transcript Rate of Relative Poverty by Group,a 1997, 2003 and 2007/8b

Bank of Israel
Annual Report 2008
April 19, 2009
1
2
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:
-

In the last quarter of the year the economy entered a recession:
-

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
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
3
2008: A Turning Point (cont.)
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.

4
GDP Growth Rates in Israel Were Higher than in the
Advanced Economies
10
8.9
%9
8
7
6
5
4.4
4.7
4.0
4
3.0
3
5.4
5.2
5.1
5.0
2.1
2.1
2
2.6
3.2
3.4
3.1
1.8 1.8
0.8
1
1.3
0.7
0.0
0
-1
-0.4
-0.7
-0.8
-0.5
-2
-3
-4
Advanced
Economies
-5
Israel
-6
-6.3
-7
-8
2000
2001
2002
2003
2004
2005
2006
2007
2008
2008Q1 2008Q2 2008Q3 2008Q4
-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
5
Steep Decline in Exports and a Drop in Private Consumption
%
10.0
18.5
17.5
20.0
8.7
8.0
3.1
5.4
0.7
6.1 6.7
4.3
4.0
3.9
8.5
7.6
3.9 3.0
0.3
0.2
0.61.1
0.0
-2.0
-3.1
-10.0
-11.1
-12.0
-20.0
-30.0
Private Consumption
Exports
-40.0
-44.8
-50.0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2008Q1 2008Q2 2008Q3 2008Q4
- 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
6
Current Account of Balance of Payments
as Percentage of GDP, 2000-2008
%
5.0
5.5
3.1
3.5
2.6
2.6
1.7
1.5
1.4
0.8
0.5
-0.5
-2.5
-1.1
-1.6
-1.8
-0.3
-0.4
-4.5
Source: Balance of payments, CBS
Q
4
20
08
Q
3
20
08
Q
2
08
20
20
08
Q
1
08
20
07
20
06
20
05
20
04
20
03
20
02
20
01
20
20
00
-6.5
Budget Deficit*
(Percentage of GDP, 2000-2009**)
%
7
Deficit Target
Actual Deficit
5.9
6
5.3
5
4.1
4
3.6
4.0
3.9
3.5
3.6
3.0
3.4
3.0
3
2.9
2.1
1.8
2
1
1.8
1.6
0.9
0.6
0.0
0
2000
2001
2002
2003
2004
2005*
2006
2007
2008
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.
8
Actual and Expected Rates of Inflation
%
Actual Inflation
7.5
6.5
Inflation Expectations
6.5
5.5
4.5
3.8
2.7
2.5
1.4
1.5
2.0
2.0
2.8
2.7
1.9
1.8
1.6
1.4
1.2
1.2
3.4
2.5
2.4
1.9
4.6
3.6
3.4
3.5
0.5
5.1
5.0
0.7
0.0
-0.5
-0.1
-0.3
-1.5
20
08
Q
1
20
08
Q
2
20
08
Q
3
20
08
Q
4
20
09
Q
1
20
08
20
07
20
06
20
05
20
04
20
02
20
01
20
00
20
03
-1.9
-2.5
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
9
Rate of Unemployment: Turnaround in the Last
Quarter of 2008
(2000-2008)
%
12.0
10.7
11.0
10.3
10.0
9.0
8.0
8.8
9.3
10.4
9.0
8.4
7.3
7.0
6.1
6.0
6.2
6.0
6.0
6.3
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
0
20 8
08
Q
20 1
08
Q
20 2
08
Q
20 3
08
Q
4
5.0
Source: CBS
Five Years of Growth: What Have We Gained?





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?



10
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)
11
Per capita GDP
Per capita GDP in Israel Relative
to the Advanced Economies1
based on Purchasing Power
Parities
Per capita GDP
(2008 prices, NIS thousands)
100
(14.9%)2
98
90
89
96
88
94
92
87
90
88
86
97.8
86
84
82
88.9
85
86.0
84
88.6
83
85.1
80
82
78
81
2000
2001-2002
2008
83.7
2000
2001-2002
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
2008
12
Overall Unemployment Rate and the Rate for those
with 0-10 Years of Education Dropped to Low Levels
Overall
0-10 Years of Education
%
%
14
14
12
12
10
13.5
14.1
10.1
9.8
10
8.8
8
8
6.1
6
6
4
4
2
2
0
0
2000
2001-2002
Source: CBS, Labor Force Surveys
2008
2000
2001-2002
2008
13
Rate of Relative Poverty by Group,a 1997, 2003 and 2007/8b
%
60
By education level of head of
household (years of schooling)
1997
50
2003
2007/8
%
By family size
80
70
1997
2003
2007/8
60
40
50
30
40
30
20
20
10
10
0
0
0-8
%
11-12
13-15
16+
1997
2003
2007/8
40
30
20
10
0
Jewish ultraorthodox
2-4
Arabs
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
5-6
7-8
9+
By number of earners
90
80
70
60
50
40
30
20
10
0
50
Jewish not ultraorthodox
1
%
By population group
70
60
9-10
1997
0
1
2003
2007/8
2+
14
Rate of Absolute Poverty by Group,a 1997, 2003 and 2007/8b
%
45
40
35
30
25
20
15
10
5
0
By education level of head of
household (years of schooling)
1997
2007/8
By family size
70
1997
2003
2007/8
60
50
40
30
20
10
0
0-8
%
50
45
40
35
30
25
20
15
10
5
0
2003
%
80
9-10
11-12
13-15
%
By population group
1997
2003
1
16+
2-4
5-6
7-8
9+
By number of earners
70
2007/8
1997
60
2003
2007/8
50
40
30
20
10
Jewish not ultraorthodox
Jewish ultraorthodox
Arabs
0
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
0
1
2+
15
Fiscal Indicators
%
Public Expenditure as a
Percentage of GDP
Debt/GDP Ratio (gross)
%
100
52
90
50
80
48
70
46
60
50.4
50
44
47.3
93.7
85.1
78.0
40
30
42
43.3
20
40
10
38
2000
• Source: Bank of Israel
2001-2002
2008
0
2000
2001-2002
2008
16
The 2001-03 Recession and the Current
Recession
2001-2003
2nd Quarter of
2008 - ?
Hi-tech
Source of the
Shock
bubble burst Global financial
crisis
World slowdown
Global recession
Intifada
Following a short
Starting Conditions
period of fast growth
(eve of the
recession)
Five
years of
sustained growth
17
%
Unindexed 5-Year Government Bond Yields
(01/2000-02/2009)
13
11
9
Current
Recession
7
5
Previous Recession
2001-2003
3
/00 7/00 1/01 7/01 1/02 7/02 1/03 7/03 1/04 7/04 1/05 7/05 1/06 7/06 1/07 7/07 1/08 7/08 1/09
01
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
%
9
7
5
5 Year Israel-U.S. Government Bond Spread*
)01/2000-02/2009(
Previous Recession
2001-2003
3
Current
Recession
1
-1
0
0
1
1
2
2
3
3
4
4
5
5
6
6
7
7
8
8
9
/0
/0
/0
/0
/0
/0
/0
/0
/0
/0
/0
/0
/0
/0
/0
/0
/0
/0
/0
01
07
01
07
01
07
01
07
01
07
01
07
01
07
01
07
01
07
01
*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
18
%
Interest Rates of the Bank of Israel,
the Fed and the ECB (2000-2009)
12
10
Previous Recession
2001-2003
Current
Recession
8
Bank of Israel
Interest Rate
6
4
2
ECB Interest Rate
Fed's Interest Rate
01
/
20
05 00
/2
0
09 00
/2
0
01 00
/2
0
05 01
/2
0
09 01
/2
0
01 01
/2
0
05 02
/2
0
09 02
/2
0
01 02
/2
0
05 03
/2
0
09 03
/2
0
01 03
/2
0
05 04
/2
0
09 04
/2
0
01 04
/2
0
05 05
/2
0
09 05
/2
0
01 05
/2
0
05 06
/2
0
09 06
/2
0
01 06
/2
0
05 07
/2
0
09 07
/2
0
01 07
/2
0
05 08
/2
0
09 08
/2
0
01 08
/2
00
9
0
Source: Bank of Israel Research Department and OECD Statistics
19
Ratio of Credit in the Market to Business Sector Product
(quarterly data, current prices)
1.8
Current
Recession
Previous Recession
2001-2003
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
Ratio of nonbank loans to business sector product
Ratio of bank loans to business sector product
Source: Bank of Israel
08
09
-
08
03
-
07
09
-
07
03
-
06
09
-
06
03
-
05
09
-
05
03
-
04
09
-
04
03
-
03
09
-
03
03
-
02
09
-
02
03
-
01
09
-
01
03
-
00
09
-
03
-
00
0
20
Banking System Indicators in Israel
Capital Adequacy Ratio
Rate of Loan Loss Provision
14.0%
1.2%
12.0%
1.0%
10.0%
0.8%
8.0%
0.6%
6.0%
0.4%
4.0%
2.0%
0.2%
0.0%
0.0%
2000
20012002
2008Q2 2008Q4
- Data refers to the end of the relevant period.
Source: Bank of Israel
2000
20012002
2008Q2
2008Q4
21
The Nominal and the Real Exchange Rate
1997 - 2009
NIS
5.0
4.8
4.6
4.4
4.2
4.0
3.8
3.6
3.4
3.2
3.0
Shekel / Dollar
Exchange Rate
)01/97-04/09)
Previous Recession
2001-2003
01
/0
9
07
/0
8
01
/0
8
07
/0
7
01
/0
7
07
/0
6
01
/0
6
07
/0
5
01
/0
5
07
/0
4
01
/0
4
07
/0
3
01
/0
3
07
/0
2
01
/0
2
07
/0
1
01
/0
1
07
/0
0
01
/0
0
07
/9
9
01
/9
9
07
/9
8
01
/9
8
The Real Exchange Rate
by Trading Partners
01/1997- ,01/1997=100)
(04/2009
Previous Recession
2001-2003
119.8
•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.
09
01
/
08
07
/
08
01
/
07
07
/
07
01
/
06
07
/
06
01
/
05
07
/
05
01
/
04
07
/
04
01
/
03
07
/
03
01
/
02
07
/
02
01
/
01
07
/
01
01
/
00
07
/
00
01
/
99
07
/
99
01
/
98
07
/
98
01
/
97
Current Recession
07
/
01
/
97
135
130
125
120
115
110
105
100
95
90
07
/9
7
01
/9
7
Current Recession
22
Forecast
23
%
Development of Forecasts of World
Economic Activity in 2009
6
4
2
0
-2
-4
-6
-8
-10
072008
102008
112008
012009
032009
World Output
USA
Euro Area
* Forecast for world trade in 2009 is a Bank of Israel estimate.
Source: IMF – World Economic Outlook
Emerging and
Developing
Economies
World Trade*
24
Annual GDP Growth Rates
%
2008-2010F
10
3.5 to 4.5
7
6.1
3.2
4
1
1.5 to 2.5
1.1
0.2
0.9
0.1
-2
-2.6
-3.2
U.S.
Euro Area
1.5 to 2.5
-5
2008
Emerging and
Developing
Economies*
2009F
*Forecasts for 2009 and 2010 are given as a possible range.
Source: IMF – World Economic Outlook 03/2009
-0.5 to -1.0
World*
2010F
25
Forecast for Main Macroeconomic
Indicators (2008-2010)
2008
2009F
2010F
GDP
4.0
-1.5
1.0
Business sector product
4.4
-2.7
1.5
Exports (excl. diamonds)
8.0
-7.1
3.0
Private Consumption
3.9
-0.9
2.2
Gross Domestic Investment
3.8
-7.1
-8.3
Civilian Imports (excl. diamonds)
7.0
-6.2
-0.3
Current Account Surplus (millions $)
1.6
3.2
2.0
Rate of Unemployment (percent)
6.1
7.7
8.3
Unless otherwise indicated the figures are rates of change.
Source: Bank of Israel Research Department
26
Thank you
27
Starting Conditions: Situation on the Eve
of the Recession
3rd Quarter
of 2000
2nd Quarter
of 2008
Unemployment Rate*
8.9
6.0
Bank of Israel Interest Rate*
8.2
3.5
Israel-U.S. Bond Spread (percent)*
2.5
2.0
Exports (percent of GDP)**
41.4
44.2
Current Account (percent of GDP)**
-1.8
0.8
Debt-to-GDP Ratio**
85.1
78.0
0.0
3.8
Inflation Rate**
*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
28
Current Account of the Balance of Payments
(percent of GDP)
%
0.8
0.5
-0.5
-1.5
-1.8
-1.6
-2.5
2000
Source: CBS, Balance of Payments
2001-2002
2008
29
Real Wages per Employee Post* for the Overall
Population and for those with 0-10 Years of Education
NIS
Overall
NIS
7,300
0-10 Year of Education
5,000
7,275
7,269
7,271
4,800
7,200
4,600
4,618
4,535
4,576
4,400
7,100
4,200
7,000
4,000
2000
2001-2002
2008
*Real wages per employee posts at 2004 prices
Source: CBS
2000
2001-2002
2008
30
Overall Employment Levels and Employment
Levels for those with 0-10 Years of Education
%
%
Overall
60
0-10 Years of Education
30
53.1
50
49.5
48.9
29
28
40
27.2
27
27.0
26.3
26
30
25.6
26.0
26.0
26.4
25.3
25
20
24
23
10
Source: CBS, Labor Force Surveys
20
08
20
07
20
06
20
05
2
20
04
2008
20
03
2001-2002
-2
00
2000
20
01
0
20
00
22
31
Annual GDP Growth Rates
2000 – 2010*
%
10
8.9
8
6
5.0
5.1
5.2
5.4
4.0
4
1.0
1.8
2
-0.4
-0.7
2002
-2
2001
0
-1.5
*Bank31
of Israel forecasts
Source: CBS and the Bank of Israel
2010F
2009F
2008
2007
2006
2005
2004
2003
2000
-4
37
Actual and Expected Rates of Inflation
%
8.0
6.8
7.0
6.6
5.8
6.0
5.0
4.0
3.8
3.4
2.7
3.0
2.0
1.9
2.0
2.4
1.5
1.3
1.2
2.8
2.5 2.5
2.0
2.0
1.9
1.8
1.6
2.7
1.4
1.0
0.7
0.4
0.0
0.0
-0.1
-0.3
-1.0
Actual Inflation
-1.9
1
20
09
Q
4
08
Q
20
08
Q
2
20
08
Q
1
20
08
Q
08
20
07
20
06
20
05
20
04
20
03
20
02
20
01
20
00
20
3
Inflation Expectations
-3.0
20
-2.0
- 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