Economic Highlights Presentation 2 nd Quarter 2012 STATE OF ISRAEL MINISTRY OF FINANCE International Affairs Department In any case of information derived from sources external to the Ministry of Finance, such sources are mentioned at the bottom of each item

Table of Contents Balances International Comparisons Main Economic Indicators Israel in the OECD Learn More Contact International Agreements Table of Contents

Main Economic Indicators GDP and Business GDP Major GDP Components Exports of Goods and Services Foreign Investments Unemployment and Participation Consumer Price Index Inflation Rate Economic Figures Main Trading Partners Israel’s Credit Ratings Gross Domestic Capital Formation 3

4 Economic Figures * Using a public exchange rate of 1USD=3.6NIS (2011 average) ** Estimated Criteria Q22011 Q32011 Q42012 Q1 GDP (constant prices, 2005, in $B)* Real GDP growth rate (% change) 4.8%4.7%3.7%3.3%3.2%2.9% GDP per capita, based on PPP (Current international $) 29,602$**31,005$6,685$6,707$6,725$6,744$ GDP per capita growth rate (%, 2005 prices) 2.9%2.8%2.0%1.4%1.1% Exports (goods & services), $B* (As % of GDP) % % % % % Imports (goods & services), $B* (As % of GDP) % % % % % Unemployment rate8.3%7.0% 6.8%6.7% Additional Sources: IMF

5 Economic Figures Criteria Public debt (As % of GDP) 84.3%77.8%77.1%79.3%76.3%74.7% General government expenditure (As % of GDP) 44.7%43.6%43.0% 42.6%42.3% Current account surplus (As % of GDP) 5.1%2.9%0.9%3.6%2.9%0.1% Inflation rate (CPI, yearly average, % change) 2.1%0.5%4.6%3.3%2.7%3.5% Budget deficit (As % of GDP) 0.9%0.0%2.2%5.2%3.7%3.3%

6 GDP and Business GDP Annual rate of change, constant prices, 2005

7 Major GDP Components Annual rate of change, constant prices, 2005 Global economic crisis

8 Exports of Goods and Services US $ Billions, constant prices, 2005 * Using a public exchange rate of 1USD=3.6NIS (2011 average) Global economic crisis

9 Main Trading Partners US $ Billions, 2011 * Since July 1997 the data on trade with Hong-Kong is added to the data on China Additional Sources: Central Bureau of Statistics

10 Main Trading Partners US $ Billions Additional Sources: Central Bureau of Statistics

11 Gross Domestic Capital Formation As % of GDP

12 Foreign Investments US $ Billions * 2006 is exceptional due to a large acquisition by Teva Pharmaceutical Industries Ltd.

13 Unemployment and Participation As % of total labor force Since the 2 nd quarter of 2009 unemployment is relatively decreasing, with a relative increase in participation rate in the beginning of In the 1 st quarter of 2012 unemployment reached an historic low level of 6.7%.

14 Consumer Price Index Last 12 monthly averages, 2010=100 Additional Sources: Central Bureau of Statistics

15 Inflation Rate Rate of change in consumer price index, yearly average

16 Israel’s Credit Ratings Overseas Bonds Forecast Domestic Bonds TermRating Firm Rating A1 Stable A1Long Moody's P1-Short A+A+ Stable AA-Long Standard & Poor's A-1A-1+Short A Stable A+Long Fitch F1-Short

Table of Contents Balances International Comparisons Main Economic Indicators Israel in the OECD Learn More Contact International Agreements

Balances 18 Budget Deficit Current Account Surplus General Government Expenditure Net Foreign Surplus Gross Public Debt Gross Tax Burden

19 Gross Public Debt As % of GDP Global economic crisis

20 Budget Deficit As % of GDP

21 Budget Deficit Target and execution in NIS million, current prices For the first time in its history, Israel enacted a biennial budget for the years In both years, Israel came in under budget target. The proven effectiveness and functionality of the biennial budget have led the government to adopt the biennial budget for a second period through On June 2012 Israeli cabinet the proposal to institute a two- year budget on a regular basis

22 General Government Expenditure As % of GDP

23 Current Account Surplus As % of GDP

24 Net Foreign Surplus As % of GDP * Using a public exchange rate of 1USD=3.6NIS (2011 average)

25 Gross Tax Burden As % of GDP Additional Sources: OECD OECD countries average: 34.8% (2008 average)

Table of Contents Balances International Comparisons Main Economic Indicators Israel in the OECD Learn More Contact International Agreements

International Comparisons 27 Inflation Rates Israel on WEF Rankings Israel on IMD Rankings Interest Rates: Israel & the U.S. GDP Growth Stock Indices: NASDAQ & Tel-Aviv 100

28 GDP Growth Israel compared to advanced economies, annual rate of change, constant prices Additional Sources: IMF 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 0.8% growth in it’s GDP.

29 Inflation Rates Rate of change in consumer price index, yearly average (2011) Additional Sources: IMF The Israeli economy demonstrated high stability compared to other countries throughout the global economic crisis.

The Institute for Management Development ranked Israel 19 th out of 59 countries for Israel on IMD Rankings IMD World Competitiveness Yearbook 2012 Additional Sources: IMD World Competitiveness Yearbook

Resilience of the economyEntrepreneurship Israel on IMD Rankings IMD World Competitiveness Yearbook 2012 Additional Sources: IMD World Competitiveness Yearbook

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 Israel on IMD Rankings IMD World Competitiveness Yearbook 2012 Additional Sources: IMD World Competitiveness Yearbook

Israel on WEF Rankings World Economic Forum Global Competitiveness Index Additional Sources: World Economic Forum Global Competitiveness Index The World Economic Forum ranked Israel 22 nd out of 142 countries for

Quality of scientific research institutionsVenture capital availability Strength of investor protectionUtility patents per million population Israel on WEF Rankings World Economic Forum Global Competitiveness Index Additional Sources: World Economic Forum Global Competitiveness Index

Government procurement of advanced technology productsCapacity for innovation University-industry collaboration in R&D Firm-level technology absorption Israel on WEF Rankings World Economic Forum Global Competitiveness Index Additional Sources: World Economic Forum Global Competitiveness Index

36 Interest Rates: Israel & the U.S.* =0 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 3.25%.

37 Stock Indices: NASDAQ & Tel-Aviv 100 Tel Aviv 100 corresponds with the NASDAQ to current events, with relatively stable reactions.

Table of Contents Balances International Comparisons Main Economic Indicators Israel in the OECD Learn More Contact International Agreements

Israel in the OECD 39 Real GDP Growth Unemployment GDP per Capita Expenditure on R&D Israel was invited as a full member in the OECD on May 10th, 2010, and officially joined in Sep. 10, 2010.

40 Expenditure on R&D As % of GDP, 2010 or latest available year Additional Sources: OECD Israel is 1 st in the OECD in expenditure on R&D (research & development) as % of GDP, demonstrating innovation, development and creativity.

41 Real GDP Growth 2011, end of period Additional Sources: OECD Israel’s growth rate is higher then most OECD members.

42 GDP per Capita U.S $ Billions, Current prices, PPP, 2011 (or most recent data) Additional Sources: OECD

43 Unemployment Rate For 2011 Additional Sources: OECD

Table of Contents Balances International Comparisons Main Economic Indicators Israel in the OECD Learn More Contact International Agreements

45 Avoidance of Double Taxation Bilateral Investment Treaties Cooperation in Industrial R&D Israel’s Free Trade Agreements Economic Organizations

46 Israel’s Free Trade Agreements QIZ Agreements USA EFTA Turkey Canada Mexico European Union (Association Agreement) MERCOSUR Egypt Jordan More extended information is available in the Israel Ministry of Finance websiteIsrael Ministry of Finance website

47 Avoidance of Double Taxation More extended information is available in the Israel Ministry of Finance websiteIsrael Ministry of Finance website Austria Belarus Belgium Brazil Bulgaria Canada China Croatia Czech Republic Denmark Estonia Ethiopia Finland France Germany Greece Hungary India Ireland Italy Jamaica Japan Latvia Lithuania Luxembourg Georgia

48 Avoidance of Double Taxation More extended information is available in the Israel Ministry of Finance websiteIsrael Ministry of Finance website Moldova Norway Philippines Portugal Poland Romania Russia Singapore Slovak Republic Slovenia South Africa Spain Sweden Switzerland Thailand Netherlands Turkey Ukraine UK Uzbekistan USA Taiwan Vietnam Mexico South Korea

49 Cooperation in Industrial R&D More extended information is available in the Israel Ministry of Finance websiteIsrael Ministry of Finance website North America New York Massachusetts Maryland Virginia Wisconsin Colorado Illinois Oregon BIRD (Foundation) Ontario CIIRDF (Foundation) South America Argentina Uruguay Brazil Australia (Victoria) Europe France Russia (Rusano, Skolkovo) Italy Germany Greece Czech Republic Bulgaria Lithuania Slovenia Denmark Hungary Turkey Portugal Finland Sweden Ireland * Through EUREKA (40 country Multilateral Initiative) Asia China( Shanghai, Jiangsu, Most) India Taiwan SIIRD-Singapore (Foundation) KORIL-RDF-Korea (Foundation)

50 Bilateral Investment Treaties Albania Argentina Armenia Azerbaijan Belarus Bulgaria China Croatia India Kazakhstan Latvia Lithuania Germany Cyprus Czech Republic El Salvador Estonia Georgia Guatemala Ethiopia Hungary Korea Moldova More extended information is available in the Israel Ministry of Finance websiteIsrael Ministry of Finance website Mongolia

51 Bilateral Investment Treaties More extended information is available in the Israel Ministry of Finance websiteIsrael Ministry of Finance website South Africa Thailand Slovakia Slovenia Serbia Poland Romania MontenegroTurkey Turkmenistan Ukraine Uzbekistan Uruguay

52 Economic Organizations Membership in main international economic organizations Israel is a member in leading international economic organizations: United Nations Organizations United Nations Agencies World Bank Group International Monetary Fund OECD Regional Organizations Inter-Governmental Organizations More extended information is available in the Israel Ministry of Finance websiteIsrael Ministry of Finance website

Table of Contents Balances International Comparisons Main Economic Indicators Israel in the OECD Learn More Contact International Agreements

Learn More 54 Visit the Israel Ministry of Finance English website for more information: Economic Overview of Israel Other publications and reports on the Israeli economy Ministry of Finance publications and reports About the Ministry Ministry press releases

Learn More 55 Bank of Israel Ministry of Foreign Affairs Ministry of Industry, Trade and Labor Israel Central Bureau of Statistics Israel Government Portal Click to open:

Table of Contents Balances International Comparisons Main Economic Indicators Israel in the OECD Learn More Contact International Agreements

Contact 57 Mr. Roni Hershkovitz Mr. Ori Kaufman Overseas Economic Information International Affairs Department Ministry of Finance State of Israel Follow us on TwitterTwitter Follow us on LinkedinLinkedin Subscribe our RSS FeedsRSS Feeds Subscribe our NewslettersNewsletters Write us an Visit our Website Website