Transcript Macro Economic Trends, Policies and Outlook Dr. Karnit

Research Department
Global Economic Crisis
and the Israeli Economy
Herzliya conference
Dr. Karnit Flug
Research Director, Bank of Israel
February 2009
1
Research Department
Global Economic
Crisis
2
Research Department
Annual Growth Rates
2007-2010F
10
8.3
8
6.3
6
3.3
4
2
5.3
2.0 1.1
1.6
5.2
3.4
3.0
2.6 1.0
0.5
0
-2
-1.6
-0.2
-2.0
-4
USA
Europe
2007
2008
Emerging and
Developing
Economies
Source: International Monetary Fund – World Economic Outlook
2009F
World
2010F
3
Research Department
Forecast of World Economic Activity in 2009
7
6
5
4
3
2
1
0
-1
-2
-3
World Output
04-2008
USA
Euro Area
Emerging and
Developing
Economies
07-2008
10-2008
11-2008
Source: IMF – World Economic Outlook
World Trade
01-2009
4
Research Department
Indexed Price of Goods Excluding Oil and the Price of Oil
2004 – 2009 (daily data)
‫מדד‬
140
‫דולרים‬
150
135
125
120
105
90
110
Price of Oil
)Left Axis(
95
75
60
45
80
Indexed Price of Goods
Excluding Oil (Right Axis)
65
30
15
50
01-2004 07-2004 01-2005 07-2005 01-2006 07-2006 01-2007 07-2007 01-2008 07-2008 01-2009
Source: Bloomberg
5
Research Department
Index of Consumer Confidence in the
U.S. and Israel
)2000-2008 , 2000 = 100(
120
110
100
90
80
70
60
50
40
30
Israel (Globes)
U.S. (University of Michigan)
20
-007 -00 1 -017 -011 -02 7 -021 -037 -031 -04 7 -041 -057 -05 1 -067 -061 -077 -07 1 -087 -08
1
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
6
1,
Ju 20
l 3 06
Au , 20
0
g
7, 6
Se 20
p
06
O 6, 2
ct
0
09 06
N , 20
ov
0
D 9, 6
ec 20
06
1
Ja 2, 2
n
0
17 06
Fe , 2
00
b
1
7
M 6, 2
ar
00
26
7
Ap , 2
0
r3
0
0, 7
Ju 20
n
07
1
Ju , 20
l0
07
Au 3, 2
0
g
0 07
Se 7,
p 200
12
7
O ,2
ct
0
12 07
N
,
ov 20
13 07
D
ec , 20
0
1
Ja 3, 2 7
n
00
1
7
Fe 7, 2
00
b
2
8
M 1, 2
ar
0
26 08
,
Ap 2
r 3 008
0
Ju ,20
n
08
5
Ju , 20
l1
08
Au 4, 2
0
g
1 0
Se 4, 8
pt 20
18 08
N , 20
ov
0
3 8
D ,2
ec 0
08
Ja 8, 2
0
n
12 08
,2
00
9
Ju
n
Research Department
The Share Markets: Israel, the US and the
Emerging Markets,
(1/6/2006=100, 01/06/2006 – 28/01/2009)
175
165
155
145
95
EM (EMERGING MARKETS)
135
125
115
105
Israel (Tel Aviv 100)
NASDAQ
85
75
65
55
7
06
/0
08 3
/0
10 3
/0
12 3
/0
02 3
/0
04 4
/0
06 4
/0
08 4
/0
10 4
/0
12 4
/0
02 4
/0
04 5
/0
06 5
/0
08 5
/0
10 5
/0
12 5
/0
02 5
/0
04 6
/0
06 6
/0
08 6
/0
10 6
/0
12 6
/0
02 6
/0
04 7
/0
06 7
/0
08 7
/0
10 7
/0
12 7
/0
02 7
/0
04 8
/0
06 8
/0
08 8
/0
10 8
/0
12 8
/0
8
Research Department
Israel 5 year Credit Default Swap and EMBI+
6/2003 - 01/2009
800
750
5yr CDS
EMBI+
700
650
654
600
550
500
450
400
350
300
250
200
200
150
100
50
0
8
Research Department
Factors Contributing to the
Exposure/Vulnerability of the Israeli
Economy to the Crisis.
•The Israeli economy is highly integrated in the global
economy.
•Being a small open economy, growth is highly dependent on
exports, particularly high tech. A large percentage of the high
tech exports are to the U.S. which is at the epicenter of the
crisis.
•Structural changes in the financial system caused the rapid
expansion of non-bank credit which contracted sharply as a
result of the global financial crisis.
•High debt-to-GDP ratio increases vulnerability and limits the
scope for counter-cyclical fiscal policy.
9
Research Department
Factors Increasing the Resilience of the
Israeli Economy
•High households savings ratio reduces the dependence of
private consumption on credit availability.
•Current account surplus and positive net asset position on
the external account.
•High (and rising) foreign exchange reserves.
•Conservative banking system: Relatively high capital
adequacy ratio and low rate of non-performing loans at the
onset of the crisis.
•No bubble in the real estate market.
10
Research Department
The Israeli Economy
11
4 /9
5
2 /9
6
4 /9
6
2 /9
7
4 /9
7
2 /9
8
4 /9
8
2 /9
9
4 /9
9
2 /0
0
4 /0
0
2 /0
1
4 /0
1
2 /0
2
4 /0
2
2 /0
3
4 /0
3
2 /0
4
4 /0
4
2 /0
5
4 /0
5
2 /0
6
4 /0
6
2 /0
7
4 /0
7
2 /0
8
4 /0
8
Research Department
50
40
30
20
10
0
-10
-20
-30
-40
Weighted Net Balance of Business-Sector Activity
12
Research Department
Weighted Net Average of all Activity in the
Business Sector by Industry
Manufacturing Industries - Net Balance of Output
Trade - Net Balance of Sales
Percent
Percent
60
30
40
20
10
0
-10
-20
-30
-40
4 /0
8
2 /0
8
2 /0
8
2 /0
7
4 /0
6
2 /0
6
4 /0
5
2 /0
5
4 /0
4
2 /0
4
4 /0
3
4 /0
7
100
2 /0
3
4 /0
2
Percent
4 /0
7
Hotels-Net Balance of Total Activity
2 /0
2
4 /0
8
2 /0
8
4 /0
7
2 /0
7
4 /0
6
2 /0
6
4 /0
5
2 /0
5
4 /0
4
2 /0
4
4 /0
3
2 /0
3
4 /0
2
2 /0
2
4 /0
1
Percent
4 /0
1
-50
-60
Construction - Net Balance of Activity
60
50
40
20
0
0
Percent
Services - Net Balance of Total Revenue from Current
Activity
Percent
4 /0
8
2 /0
7
4 /0
6
2 /0
6
4 /0
5
2 /0
5
4 /0
4
2 /0
4
4 /0
3
2 /0
3
4 /0
2
2 /0
2
.‫**לעומת הרביע המקביל אשתקד‬
-60
4 /0
1
4/0
8
2/0
8
4/0
7
2/0
7
4/0
6
2/0
6
4/0
5
2/0
5
4/0
4
2/0
4
4/0
3
2/0
3
-40
4/0
2
-100
2/0
2
-20
4/0
1
-50
Transport and Communications Net Balance of Total Activity
60
13
4/0
8
2/0
8
4/0
7
2/0
7
4/0
6
2/0
6
4/0
5
2/0
5
4/0
4
2/0
4
4/0
3
4/0
8
2/0
8
4/0
7
2/0
7
4/0
6
2/0
6
4/0
5
2/0
5
4/0
4
2/0
4
4/0
3
2/0
3
4/0
2
2/0
2
4/0
1
-60
2/0
3
-40
4/0
2
0
-20
2/0
2
20
4/0
1
70
50
30
10
-10
-30
-50
-70
40
Research Department
Macro Economic Forecast
Gross Domestic Product
Business-Sector Product
Private Consumption
Exports (excl. diamonds)
Gross Domestic Investment
Civilian Imports
(excl. ship, planes and diamonds)
Unemployment Rate
Current Account ($ billions)
2008 2009F 2010F
4.0
-0.2
2.7
4.4
-0.9
3.3
3.9
1.1
3.7
9.1
-2.4
4.6
4.1
-5.9
-4.2
7.5
-2.7
1.6
6.1
7.6
7.6
1.9
2.0
4.0
14
Research Department
GDP Growth
(1990-2010*)
10
8.9
8
7.1
6
6.3
5.4
3.6
5.2
5.1
5.2
5.4
4.2
4
4.0
2.9
2.8
2.9
1.8
0.4
0.3
2
3.2
-0.4
-0.6
3.5
3.4
3.5
2.7
2.3
2.3
-0.2
1.0
1.7
1.7
0.4
3.5
2.5
2.5
2.7
2.6
2.4
2.4
2
1.8
1.8
1.8
1.8
1.8
1.7
0
-2
-2.7
Per capita GDP
-2.7
-1.9
Population
•SOURCE: Based on Central Bureau of Statistics data.
*BOI Forecast
20
10
F
20
09
F
20
08
20
07
20
06
20
05
20
04
20
03
20
02
20
01
20
00
19
99
19
98
19
97
19
96
19
90
-1
99
5
-4
15
Research Department
Growth Factor Decomposition
(Annual Percent Changes)
2000-2008
Labor Input
Capital Stock
Total Factor Productivity
12%
10%
8%
6%
4%
2%
0%
-2%
-4%
-6%
00
0
2
01
0
2
02
0
2
03
0
2
04
0
2
* Estimate for 2008 based on the first three quarters.
05
0
2
06
0
2
*
7
8
0
0
20
20
16
Research Department
Current Account of Balance of Payments
as Percentage of GDP, 1995-2010* (Annual)
8
5.6
3.0
2.7
2.1
2
1.1
2.1
1.0
1.1
2009F
4
2008
6
0
-0.9
-2
-0.8 -1.1 -0.8
-3.1
-4
* BOI Forecast
•SOURCE: Balance of Payments, Central Bureau of Statistics.
2010F
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
-5.0 -4.9
1995
-6
-1.3
17
Research Department
Employment and Unemployment Rates
2000 – 2010*
%
%
12
54
53
52
51
50
49
48
47
46
10
8
6
4
2
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009F 2010F
Unemployment Rate
*Bank of Israel forecasts
Employment Rate
18
Research Department
Macro Economic
Policy
19
Research Department
Budget Deficit*
(Percentage of GDP, 2000-2009**)
%
6
5.4
5
Actual Deficit
4.4
3.9
4
Deficit Target
3.6
4.1
4.0
3.8
3.6
3.4
3.0
3.0
2.9
3
2.1
1.8
2
1
1.9
1.6
0.9
0.7
0.0
0
2000
2001
2002
2003
2004
2005*
2006
2007
2008
2009*
*Percent of GDP; excluding credit extended. The data from 2000 refer to the deficit excluding the Bank of Israel’s profits.
20
**BOI forecast for 2009 is based on the budget that has been approved by the government.
Research Department
Gross Public Debt
%
(2000-2009*, percentage of GDP)
120
97.6
100
99.9
98.2
94.3
89.9
85.5
85.1
80
79.5
77.6
81.9
2007
2008
2009F
60
40
20
0
2000
2001
*Bank of Israel Forecasts
2002
2003
2004
2005
2006
21
Research Department
Inflation Over the Past 12 Months, Inflation Targets and
Inflation Expectations from the Capital Market
2001-2009.1
8
6
10 Year Expectations
4
2
0
-2
1 Year Inflation Expectation
Actual Inflation
0
01 1-‫אי‬
-‫ר‬
‫מ‬
‫מב‬
‫פט‬
02 ‫ס‬
-‫ר‬
‫וא‬
‫נ‬
02 ‫י‬
02 -‫אי‬
-‫ר‬
‫מ‬
‫מב‬
‫פט‬
03 ‫ס‬
-‫ר‬
‫וא‬
‫נ‬
03 ‫י‬
03 -‫אי‬
-‫ר‬
‫מ‬
‫מב‬
‫פט‬
04 ‫ס‬
-‫ר‬
‫וא‬
‫נ‬
04 ‫י‬
04 -‫אי‬
-‫ר‬
‫מ‬
‫מב‬
‫פט‬
05 ‫ס‬
-‫ר‬
‫וא‬
‫נ‬
05 ‫י‬
05 -‫אי‬
-‫ר‬
‫מ‬
‫מב‬
‫פט‬
06 ‫ס‬
-‫ר‬
‫וא‬
‫נ‬
06 ‫י‬
06 -‫אי‬
-‫ר‬
‫מ‬
‫מב‬
‫פט‬
07 ‫ס‬
-‫ר‬
‫וא‬
‫נ‬
07 ‫י‬
07 -‫אי‬
-‫ר‬
‫מ‬
‫מב‬
‫פט‬
08 ‫ס‬
-‫ר‬
‫וא‬
‫נ‬
08 ‫י‬
08 -‫אי‬
-‫ר‬
‫מ‬
‫מב‬
‫פט‬
09 ‫ס‬
-‫ר‬
‫וא‬
‫ינ‬
-4
22
Research Department
Interest Rates of the Bank of Israel, the Fed and the
European Central Bank (2005-2009)
%
6
Bank of Israel Interest Rate
5
4
3
ECB Interest Rate
Fed's Interest Rate
2
1
01
/
20
03 05
/2
0
05 05
/2
0
07 05
/2
0
09 05
/2
0
11 05
/2
0
01 05
/2
0
03 06
/2
0
05 06
/2
0
07 06
/2
0
09 06
/2
0
11 06
/2
0
01 06
/2
0
03 07
/2
0
05 07
/2
0
07 07
/2
0
09 07
/2
0
11 07
/2
0
01 07
/2
0
03 08
/2
0
05 08
/2
0
07 08
/2
0
09 08
/2
0
11 08
/2
0
01 08
/2
00
9
0
*12 month rates, derived from the capital market
23
Research Department
Thank You
24
Research Department
The Nominal and the Real Exchange Rate
1997 - 2009
NIS
Shekel / Dollar Exchange Rate
01/01/1997-31/01/2009
1/
97
4/
97
8/
97
12
/9
7
4/
98
8/
98
12
/9
8
4/
99
8/
99
12
/9
9
4/
00
8/
00
11
/0
0
3/
01
7/
01
11
/0
1
3/
02
7/
02
11
/0
2
3/
03
7/
03
11
/0
4
3/
04
8/
04
5/
03
4/
05
9/
05
3/
06
9/
06
3/
07
9/
07
3/
08
8/
08
5.0
4.8
4.6
4.4
4.2
4.0
3.8
3.6
3.4
3.2
3.0
The Real Exchange Rate by Trading Partners
)01/1997-01/2009 ,01/1997=100(
114.4
•A rise in the index indicates depreciation.
•The figure for January 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 January 2009, Bank of Israel
calculations.
01
/9
7
07
/9
7
01
/9
8
07
/9
8
01
/9
9
07
/9
9
01
/0
0
07
/0
0
01
/0
1
07
/0
1
01
/0
2
07
/0
2
01
/0
3
07
/0
3
01
/0
4
07
/0
4
01
/0
5
07
/0
5
01
/0
6
07
/0
6
01
/0
7
07
/0
7
01
/0
8
07
/0
8
01
/0
9
135
130
125
120
115
110
105
100
95
90
*The Nis/$ chart is on a daily basis, while the real exchange rate chart is on a monthly basis.
25
Research Department
Financial Constraints According to Industry
Weight in the Business Sector
2
1.75
1.5
1.25
1
0.75
0.5
0.25
03
/0
2
09
/0
2
03
/0
3
09
/0
3
03
/0
4
09
/0
4
03
/0
5
09
/0
5
03
/0
6
09
/0
6
03
/0
7
09
/0
7
03
/0
8
09
/0
8
0
Small
Medium
Scale of the severity of the constraint ranges from 0-4.
0 – No constraint
4 – Finance is a major constraint on expansion
Large
26