STATE OF ISRAEL

MINISTRY OF FINANCE Chief Economist Department – Research, State Revenue & International Affairs

Economic Highlights Presentation 3

rd

Quarter 2013 ( As of October 1

st

)

In any case of information derived from sources external to the Ministry of Finance, such sources are mentioned at the bottom of each item

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Economic Figures

Criteria GDP

(Current prices in $B)*

Real GDP growth rate

(% change)

GDP per capita

(Current $)

GDP per capita growth rate

(%, constant prices)

Exports (goods & services), $B* (As % of GDP) Imports (goods & services), $B* (As % of GDP) Unemployment rate** 2011

258.4

4.6%

2012

257.5

3.4%

2012 Q2 2012 Q3 2012 Q4 2013Q1 2013Q2

64.2

3.0% 64.0

4.1% 66.0

3.0% 68.3

2.6% 72.8

4.9% $ 33,288 $ 32,566 8,145$ 8,074$ 8,290$ 8,538$ 9,059$ 2.7% 91.7

35.5% 93.0

36.0% 7.0% 1.5% 93.1

36.2% 92.6

36.0% 6.9% 1.3% 24.8

38.6% 23.5

36.6% 6.9% 2.1% 22.8

35.6% 23.1

36.2% 6.9% 0.9% 23.2

35.2% 21.9

33.2% 6.9% 0.7% 23.3

34.1% 21.8

32.0% 6.6% 3.2% 24.5

33.7% 22.5

31.0% 6.8% *Using a periodic average exchange rate.

** For available months Sources: CBS, IMF 3

Economic Figures

Criteria Public debt

(As % of GDP)

General government expenditure

(As % of GDP)

Current account surplus

(As % of GDP)

Inflation rate

(CPI, yearly average, % change)

Budget deficit

(As % of GDP)

2007

74.7% 42.6% 3.2% 0.5% 0.0%

2008

73.2% 41.6% 1.4% 4.6% 2.1%

2009

75.3% 41.8% 3.8% 3.3% 4.9%

2010

71.7% 41.0% 3.1% 2.7% 3.5%

2011

69.8% 40.4% 1.3% 3.5% 3.1%

2012

68.4% 40.2% 0.3% 1.7% 3.9% * MoF Estimates 4

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GDP and Business GDP

Annual rate of change, constant prices, 2005 6

GDP Growth

Israel compared to advanced economies, annual rate of change, constant prices Since 2004, Israel’s growth rate has exceeded the average growth rate of advanced economies.

In 2009, as most of the world experienced a decline in GDP, Israel experienced a 1.1% growth in it’s GDP.

* MoF forecast, Euro stat and OECD forecast Source: CBS, OECD Stat 7

GDP Components

Real Annual Percentage Change Effects of the global economic crisis 8

GDP per Capita

$ U.S, Current prices, Current PPP, 2012 Source: OECD 9

Output Gap

As percentage of Potential GDP, 2012 The actual - potential GDP Difference.

Positive index means that actual output is higher than potential.

Additional Sources: OECD Estimates 10

Stock Exchange Indices

Percentage Change, end of period relative to end of previous period * The change since the beginning of 2013 till the end of the third quarter.

Additional Sources: TASE, Bloomberg 11

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Exports of Goods and Services

As a share of GDP Effects of the global economic crisis 13

Main Trading Partners

$ US Billions, 2012 * The data on trade with Hong-Kong is added to the data regarding China Source: Central Bureau of Statistics 14

Main Export Destinations

As a share of total exports * Relates to January-August 2013 Source: Central Bureau of Statistics 15

Current Account Surplus

As % of GDP * 2013 first half.

Source: Central Bureau of Statistics 16

Foreign Investments

$ US Billions * In 2006, a large acquisition by Teva Pharmaceutical Industries Ltd. was included in the data.

** 2013 first half at annualized.

Source: Central Bureau of Statistics 17

Exchange Rates

30 September 2013 vs 31 December 2012 The change in the specified currency relative to the $ US A decrease means an appreciation of the specified currency relative to the $ US Source: Pacific Exchange Rate Service 18

Terms of Trade

2005 average = 100 Terms of Trade = Export Prices to Import Prices Ratio Source: Central Bureau of Statistics 19

Israel’s Free Trade Agreements

1985 1992 1997 1997 1999 2000 2007 USA EFTA Turkey Canada

QIZ Agreements

1998 2004 Mexico European Union (Association Agreement) MERCOSUR More comprehensive information is available on the Israel Ministry of Finance website Jordan Egypt 20

Bilateral Investment Treaties

Albania Argentina Armenia Azerbaijan Belarus Bulgaria China Columbia* Croatia* *Comprehensive information is available on the Israel Ministry of Finance website Cyprus Czech Republic El Salvador Estonia Ethiopia Georgia Germany Guatemala Hungary* India Kazakhstan Korea Latvia Lithuania Moldova Macedonia* 21

Bilateral Investment Treaties

Montenegro Poland Romania Turkey Turkmenistan Ukraine Uruguay Uzbekistan Serbia Slovakia Slovenia* South Africa* Thailand *Comprehensive information is available on the Israel Ministry of Finance website 22

Economic Organizations

Membership in main international economic organizations

Israel is a member of leading international economic organizations:

• United Nations Organizations • United Nations Agencies • World Bank Group • International Monetary Fund • OECD • Regional Organizations • Inter-Governmental Organizations More comprehensive information is available on the Israel Ministry of Finance website 23

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Unemployment and Participation

As % of total labor force Since the 2 nd quarter of 2009 unemployment is relatively decreasing, with a gradual increase in the participation rate since the beginning of 2010.

*Available data.

Source: Central Bureau of Statistics 25

Unemployment Rate

Latest available data Additional Sources: OECD 26

Job Creation

Change in the number of employees Effects of the global economic crisis Annual average relative to previous year average.

* January to August average.

Source: Central Bureau of Statistics 27

Employment Rate

People aged over 15, latest available quarterly data Additional Sources: OECD, Euro Stat 28

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General Government Expenditure

As % of GDP Source: CBS 30

General Government Tax Burden

As % of GDP Source: Central Bureau of Statistics, OECD 31

General and Central Budget Deficit

As % of GDP Source: CBS, MoF 32

Public Debt

As % of GDP Effects of the global economic crisis Source: CBS, MoF 33

Public Debt

As % of GDP, international comparison Source: CBS, MoF, OECD 34

Avoidance of Double Taxation

Austria Belarus Belgium Brazil Bulgaria Canada China Croatia Czech Republic Denmark Estonia Ethiopia Finland France Georgia Germany Greece Hungary More comprehensive information is available on the Israel Ministry of Finance website India Ireland Italy Jamaica Japan Latvia Lithuania Luxembourg 35

Avoidance of Double Taxation

Mexico Moldova Netherlands Norway Panama Philippines Russia Singapore Slovak Republic Slovenia South Korea Poland Portugal South Africa Spain Sweden Switzerland Romania More comprehensive information is available on the Israel Ministry of Finance website Taiwan Thailand Turkey UK Ukraine USA Uzbekistan Vietnam 36

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Inflation Rate

Rate of change in consumer price index Source: Central Bureau of Statistics 38

Interest Rate

Source: Bank of Israel 39

Central Bank’s Interest Rates

International Comparison Source: Specified Countries’ Central Banks 40

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Industrial Production

Annual Growth, 2013 average relative to 2004 average

Total industrial production grew by 3.8%

Source: Central Bureau of Statistics 42

Industrial Export

Current U.S. $ Billions, and the share of high tech and mid high tech sectors in the Israeli goods exports

73.2% 72.5% 75.3% 75.4% 76.3% 76.6% 77.3% 80.9% 80.3% 80.0% 79.5% 80.5%

* 2013 available months at annual rate Source: Central Bureau of Statistics 43

4 5

Israel is a World Leader in Science, Technology, and Innovation

1 st in R&D expenditure as % of GDP* 

Civilian R&D as % of GDP, 2011

 1 st in quality of scientific research institutions**

4.4

 1 st for entrepreneurship being widespread amongst its managers*  2 nd in public expenditure on education*

3.8

3 2.8

 3 rd in venture capital availability**  4 th in PCT patents applications per million population**

2.3

 5 th for strength of investor protection**

2 2.0

1.9

1.8

1.8

1.7

1.7

1.6

 6 Israelis in the last 10 years have been awarded Nobel Prizes in the fields of Economics or Chemistry

1.3

1.3

1 0

Global Competitiveness Report 2012-2013

“The country’s main strengths remain its world-class capacity for innovation (3rd), which rests on highly innovative businesses that benefit from the presence of the world’s best research institutions geared toward the needs of the business sector. Israel’s excellent innovation capacity, which is supported by the government’s public procurement policies, is reflected in the country’s high number of patents (4th). Its favorable financial environment, particularly evident in the ease of access to venture capital (3rd), has contributed to making Israel an innovation powerhouse..” Source: OECD.

* International Institute for Management Development (IMD) Global Competitiveness Yearbook 2011. ** World Economic Forum (WEF) Global Competitiveness Report 2012-2013.

44

Israel in IMD Rankings

IMD World Competitiveness Yearbook 2013 (2) USA 1 (3) Switzerland 2 (1) Hong Kong 3 (5) Sweden 4 (4) Singapore 5 (8) Norway 6 (6) Canada 7 (16) UAE 8 (9) Germany 9 (10) Qatar 10 (7) Taiwan 11 (13) Denmark 12 (12) Luxemburg 13 (11) Netherlands 14 (14) Malaysia 15 (15) Australia 16 (20) Ireland 17 (18) United Kingdom 18

(19) Israel 19

(17) Finland 20 The Institute for 59 countries for 2012.

Management Development ranked Israel 19

th

out of Israel has entrepreneurship and 9 resilience.

been ranked th 1 st at at economy 45 Source: IMD World Competitiveness Yearbook 2013

Israel in IMD Rankings

IMD World Competitiveness Yearbook 2012 Israel’s ranking compared to other IMD countries, Business Efficiency and Infrastructure Israel’s ranking compared to other IMD countries, Economic Performance and Government Efficiency Source: IMD World Competitiveness Yearbook 2012 46

Israel in WEF Rankings

World Economic Forum Global Competitiveness Index 2012-2013 The World Economic Forum ranked Israel 27

th

out of 148 countries for 2013-2014 in terms of competitiveness.

The Forum also ranked Israel: 1 st in Quality of scientific research institutions 3 rd in Innovation 4 th in Capacity for Innovation 5 th in Firm-level technology absorption 6 th in Strength of investor protection 6 th in Capacity for innovation 6 th in Company spending on R&D And 8 th in Venture Capital Availability Source: World Economic Forum Global Competitiveness Index 2012-2013 47

Cooperation in Industrial R&D

North America

New York Massachusetts Maryland Virginia Wisconsin Colorado Illinois Oregon BIRD (Foundation) Ontario CIIRDF (Foundation)

South America

Argentina Uruguay Brazil

Europe

France Russia Italy ( and Trento county) Germany Greece Czech Republic Bulgaria Lithuania Slovenia Denmark Hungary Turkey Portugal Finland Sweden Ireland Spain Cyprus Netherlands

Asia

China (Shanghai, Jiangsu, Shenzhen, Federal) India SIIRD-Singapore (Foundation) KORIL-RDF-Korea (Foundation)

Australia (Victoria)

* Through EUREKA (40 country Multilateral Initiative) More comprehensive information is available on the Israel Ministry of Finance website 48

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Learn More

Visit the Israel Ministry of Finance English website for more information:

About the Ministry Economic Overview of Israel Ministry of Finance publications and reports Other publications and reports on the Israeli economy Ministry press releases 50

Learn More

Click to open: Israel Central Bureau of Statistics Bank of Israel Ministry of Industry, Trade and Labor Ministry of Foreign Affairs Israel Government Portal 51

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Contact

Mr. Oded Keneresh, CPA Mr. Ori Kaufman Dr. Amichai Fishler

Overseas Economic Information Economics and State Revenue Department Ministry of Finance State of Israel Write us an email [email protected]

[email protected]

[email protected]

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