STATE OF ISRAEL MINISTRY OF FINANCE INTERNATIONAL AFFAIRS DEPARTMENT ECONOMIC HIGHLIGHTS 2 nd Quarter 2010 Click to start

Contents Economic Figures Balances International Comparisons Israel and the OECD International Treaties Relevant Sites Note: You can return to the beginning of each chapter by clicking the emblem of Israel on the top of each slide. Contact Us

Economic Figures GDP and Business GDP Major GDP Components Growth: Israel compared to the World Exports of Goods and Services Foreign Investments Unemployment & Participation Rates Inflation Rate Growth of Main GDP Components 2008 Main Economic Indicators Main Trading Partners Inflation Rate Worldwide BACK TO CONTENTS

*Using a public exchange rate of 1$ = 3.82NIS ** In current prices Main Economic Indicators 2010 Q Q Q Q Criteria GDP (current prices in $B)* 3.3%4.8%3.6%1.2%0.7%4.0% Real GDP Growth Rate (%) -- None yet27,143$ GDP per Capita (PPP adjusted)** 1.4%2.7%1.7%-0.4%-1.5%2.2% GDP per Capita Growth Rate (%, 2005 prices) 19.4 (41.7%) 19.8 (42.8%) 17.9 (39.3%) 17.3 (38.2%) 72.6 (39.7%) 82.0 (45.1%) Exports (Goods & Services)** $B* (As Percentage of GDP) 19.6 (42.1%) 17.9 (38.8%) 17.3 (38.0%) 16.8 (37.0%) 68.8 (37.6%) 80.0 (44.0%) Imports (Goods & Services)** $B* (As Percentage of GDP) 7.2%7.3%7.7%7.9%7.6%6.1% Unemployment Rate (%) Source: Ministry of Finance, IMF CONTINUE

Source: Ministry of Finance Criteria 79.6%77.2%78.3%84.5% Total Gross Debt (% of GDP) 42.7%42.9%44.0%44.8% Government Expenditure (Percentage of GDP) 3.8%0.7%2.9%5.1% Current Account Surplus (% of GDP) 3.3%4.6%0.5%2.1% Inflation Rate (CPI, yearly average) CONTINUE Main Economic Indicators

Source: Ministry of Finance Overseas Bonds Forecast Domestic Bonds TermRating Firm Rating A1 Stable A1Long Moody's P1-Short A Stable AA-Long Standard & Poor's A-1A-1+Short A Stable A+Long Fitch F1-Short Main Economic Indicators Moody's / S&P & Fitch Aa3/AA- A1/A+ A2/A A3/A- Baa1/BBB+ Baa2/BBB Baa3/BBB- CONTINUE All 3 rating firms have reaffirmed Israel’s rating, without any downgrade, during the global economic crisis in 2009.

GDP and Business GDP Annual rate of change (%), in Constant Prices In recent years, prior to the global economicSince Q2 2009, Israel is experiencing crisis, the Israeli economy experienced high constant growth, indicating a fast growth rates recovery from the global economic crisis Source: Ministry of Finance. CONTINUE

GDP Growth Israel compared to Advanced Economies* (Annual rate of change (%), in constant prices) Weighted average: US – 39%, Euro area – 46.5%, Japan – 3%, UK – 5%, Asian Newly Industrialized countries – 6.5% Source : Ministry of Finance. Since 2004, Israel’s growth rate has exceeded the average growth rate of advanced economies. CONTINUE In 2009, as most of the world experienced a decline in GDP, Israel experienced a 0.7% growth in it’s GDP

Major GDP Components (Annual rate of change (%), in constant prices) Source: Ministry of Finance CONTINUE In 2009, due to the global economic crisis, Investment in Fixed Assets and Export of Goods and Services contracted severely. However, the strength and resiliency of Israel's economy in a time of crisis is demonstrated by the positive growth of both Private Consumption and Government Consumption during the same period. Global Economic Crisis

Source: Ministry of Finance Exports of Goods and Services ($B) CONTINUE *Using a public exchange rate of 1$ = 3.82NIS ** In current prices Global Economic Crisis

Israel’s Main Trading Partners (US$ Billions, excluding diamonds) Source: Central Bureau of Statistics Exports Imports CONTINUE * Since July 1997 the data on trade with Hong-Kong is added to the data on China In 2009, China became a bigger trading partner for Israel

Net Foreign Investments in Israel (In $ Billion) Source: Ministry of Finance CONTINUE Global Economic Crisis

Unemployment and Participation (As % of Total Labor Force) Source: Ministry of Finance CONTINUE As Israel grows out of the global recession, unemployment is decreasing

Inflation Rate (Rate of Change in CPI, yearly average) Source: Central Bureau of Statistics, Ministry of Finance * July 2009 index compared to July 2008 CONTINUE

Inflation Rate Worldwide (Annual rate of change in CPI) Sources: Ministry of Finance, IMF CONTINUE The Israeli economy demonstrated a high level of stability compared to other countries throughout the global economic crisis

2009Criteria + 0.7%Real GDP - 0.2%Business GDP %Exports + 1.5%Private Consumption + 1.6%Public Consumption - 6.0%Investment in Fixed Assets Source: Ministry of Finance Growth of Main GDP Components for Previous Year NEXT CHAPTER: BALANCESBACK TO CONTENTS

Balances Budget Deficit – Target and Execution Gross Public Debt BACK TO CONTENTS Budget Deficit and General Government Expenditure Gross Tax Burden Current Account and Net Foreign Debt

Gross Public Debt (as percentage of GDP) Source: Ministry of Finance Since 2003, gross public debt has been on a consistent downward trend, only interrupted by the extraordinary circumstances surrounding the 2009 global economic crisis CONTINUE Global Economic Crisis

Budget Deficit – Target and Execution Source: Ministry of Finance CONTINUE For the first time in its history, Israel enacted a biennial budged for the years In 2009 Israel came in under budget target.

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

Current Account Balance and Net Foreign Debt Source: Ministry of Finance. Since 2003, the current account balance is positive, and is accompanied by a decrease of net foreign debt Current Account Surplus (% of GDP) Net Foreign Debt (% of GDP) CONTINUE

Source: Ministry of Finance, OECD Gross Tax Burden (as % of GDP) OECD countries average: 35.8% (2007 average) OECD countries average: 35.2% (2008 average estimated by OECD) NEXT CHAPTER: INTERNATIONAL COMPARISONSBACK TO CONTENTS

International Comparisons NASDAQ and Tel-Aviv 100 (monthly average) WEF Global Competitive Index Central Bank Interest Rates: Israel and U.S.A BACK TO CONTENTS IMD World Competitiveness Yearbook

Source: International Institute for Management and Development (IMD), World Competitiveness Yearbook 2010 IMD World Competitiveness Yearbook 2010 The Institute for Management Development ranked Israel 17 th out of 58 countries for 2010 CONTINUE

Source: International Institute for Management and Development (IMD), World Competitiveness Yearbook 2010 IMD World Competitiveness Yearbook 2010 Israel is at: Resilience of the economy to economic cycles Israel is at: Youth unemployment Central Bank policy Skilled labor Public and private sector ventures Innovative capacity Total expenditure on R&D Business expenditure on R&D Finance skills Entrepreneurship of managers Flexibility and adaptability of people Scientific research (public and private) CONTINUE

Source: International Institute for Management and Development (IMD), World Competitiveness Yearbook 2010 IMD World Competitiveness Yearbook 2010 Israel is at: Capital markets (foreign and domestic) Israel is at: Adaptability of government Venture capital Pension funding CONTINUE

Source: World Economic Forum, Global Competitiveness Index, The World Economic Forum ranked Israel 27 th out of 134 countries for CONTINUE WEF Global Competitiveness Index

Source: World Economic Forum, Global Competitiveness Index, CONTINUE Utility PatentsQuality of Scientific Research Institutions Strength of Investor ProtectionCompany spending on R&D WEF Global Competitiveness Index

Source: World Economic Forum, Global Competitiveness Index, Capacity for InnovationAvailability of Latest Technologies Venture Capital AvailabilityPersonal Computers CONTINUE WEF Global Competitiveness Index

Central Bank Interest Rates: Israel and U.S.A Source: Bank of Israel (BOI), Federal Reserve Bank of Israel Rate (BOI) U.S. Federal Funds Rate The Bank of Israel was the first in the western world to raise interest since the outburst of the economic crisis. The rate was raised gradually from 0.5% to 1.5% CONTINUE

NASDAQ & Tel Aviv 100 (monthly average) Source: Ministry of Finance Tel Aviv 100 corresponds with the NASDAQ to current events NEXT CHAPTER: ISRAEL AND THE OECDBACK TO CONTENTS

Israel and the OECD Unemployment GDP per Capita Real GDP Growth BACK TO CONTENTS Expenditure on R&D article in our latest Economic Highlights newsletter Israel has been invited as a full member in the OECD on May 10 th, 2010, and officially joined in May 27 th, See more:

Source: OECD CONTINUE Israel is ranked 1 st of all OECD countries by expenditure on R&D (research & development) as percentage of GDP (4.864 %), demonstrating innovation, development and creativity % Expenditure on R&D (selected countries, as percentage of GDP, 2008)

Real GDP Growth (selected countries, annual percentage of change, 2009) Source: OECD CONTINUE While many OECD countries were severely affected by the global economic crisis, Israel experienced only a relatively mild decline in its growth rate. For Israel’s year-to-year graph, see slide no.7 0.7%

GDP per capita (selected countries, current prices in US$, current PPP’s, 2008) Source: OECD 27, ,739.9* * Estimated Israel stands just a little below the Total OECD Average For Israel’s adjusted PPP GDP Per Capita, see slide no.4 CONTINUE

Source: Ministry of Finance, OECD Israel stood below the Total OECD Average Israel’s unemployment grew mildly compared with some OECD members during 2009, with the global economic crisis in background. 7.6% 8.3%* * Estimated NEXT CHAPTER: INTERNATIONAL TREATIESBACK TO CONTENTS Unemployment Rate (harmonized)

International treaties Avoidance of Double Taxation Agreements Protection of Investments Agreements Cooperation in Industrial R&D Agreements International Organization Memberships Israel’s Free Trade Agreements BACK TO CONTENTS

QIZ Agreements Egypt(2004) Jordan(1998) Israel’s Free Trade Agreements USA EFTA Turkey Canada Mexico European Union (Association Agreement) MERCOSUR (Argentina, Brazil, Paraguay & Uruguay, not yet in force) CONTINUE Source: Ministry of Finance

Avoidance of Double Taxation Agreements 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 CONTINUE Source: Ministry of Finance

Avoidance of Double Taxation Agreements CONTINUE Source: Ministry of Finance Luxembourg Mexico Moldova Norway Philippines Portugal Poland Romania Russia Singapore Slovakia Slovenia South Africa South Korea Spain Sweden Switzerland Thailand Netherlands Turkey Ukraine United kingdom Uzbekistan U.S.A VietnamTaiwan

Cooperation in Industrial R&D Agreements CONTINUE Source: Ministry of Finance Austria Belgium Canada China Finland France Germany Hong Kong Sweden United kingdom U.S.A India Ireland Italy Korea Netherlands Portugal Singapore Spain Victoria (Australia)

Protection of Investment Agreements CONTINUE Albania Argentina Armenia Azerbaijan Belarus Bulgaria China Croatia India Kazakhstan Latvia Lithuania Moldova Mongolia Poland RomaniaGermany Cyprus Czech Republic El Salvador Estonia Georgia Guatemala Ethiopia Source: Ministry of Finance

*pending ratification Protection of Investment Agreements CONTINUE South Korea Slovakia Slovenia South Africa * Thailand Turkey Turkmenistan SerbiaUkraine Uruguay Uzbekistan Source: Ministry of Finance

Main International Economic Organizations Membership: Israel is a member in leading international economic organizations: WBG IMF WTO OECD A more detailed list: 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 NEXT CHAPTER: RELEVANT SITESBACK TO CONTENTS Source: Ministry of Finance

Relevant Sites BACK TO CONTENTS Ministry of Finance International Affairs Website Ministry of Finance Israeli Government Institutions OECD Profile on Israel Bank of Israel (BOI) Central Bureau of Statistics Israeli Government Portal Israel Securities Authority Ministry of Industry, Trade and Labor CONTACT US

WE WELCOME YOUR FEEDBACK Mr. Roni Hershkovitz Director Overseas Economic Information International Affairs Department Ministry of Finance Jerusalem Israel Mr. Assaf Luxembourg Overseas Economic Information International Affairs Department Ministry of Finance Jerusalem Israel START OVER Follow us on Twitter Subscribe to our RSS Feeds Subscribe to our Newsletters Write us an Visit our Website