Economic Highlights Presentation 1 st Quarter 2014 (As of May 1 st ) STATE OF ISRAEL MINISTRY OF FINANCE Chief Economist Department – Research, State Revenue & International Affairs 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 Foreign Trade and Balance of Payments Labor Market Real Economy Fiscal Stance Innovative Economy Learn More Price Stability and Monetary Policy Table of Contents 1Main Indicators 9Contact

3 Economic Figures *Using a periodic average exchange rate ** For available months Criteria Q42013 Q12013 Q22013 Q32013 Q4 GDP (Current prices in $B)* Real GDP growth rate (% change) 3.4%3.3%3.5%2.0%4.5%1.8%3.2% GDP per capita (Current $) 32,565$$36,226$8,294$8,521$9,080$9,292$9,308 GDP per capita growth rate (%, constant prices) 1.5%1.3%1.4%0.1%2.8%-0.1%1.2% Exports (goods & services), $B* (As % of GDP) % % % % % % % Imports (goods & services), $B* (As % of GDP) % % % % % % % Unemployment rate**6.9%6.2%6.9%6.6%6.7%6.0%5.8% Sources: CBS, IMF

4 Economic Figures Criteria Public debt (As % of GDP) 74.7%73.2%75.3%71.7%69.8%68.4%* General government expenditure (As % of GDP) 42.6%41.6%41.8%41.0%40.4%40.2%40.4% Current account surplus (As % of GDP) 3.2%1.4%3.8%3.1%1.3%0.3%2.5% Inflation rate (CPI, yearly average, % change) 0.5%4.6%3.3%2.7%3.5%1.7%1.5% Budget deficit (Central) (As % of GDP) 0.0%2.1%4.9%3.5%3.1%3.9%3.2% * Data not available at time of publication

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

7 GDP Growth Israel compared to advanced economies, annual rate of change, constant prices Source: CBS, OECD, Eurostat, BEA 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 1.2% growth in it’s GDP. All data taken from OECD * Data from respective official source (CBS, OECD (forecast), Eurostat, BEA)

8 GDP Components Real Annual Percentage Change Effects of the global economic crisis

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

10 Output Gap As percentage of Potential GDP, 2013 (based on data last updated 4/12/13) Additional Sources: OECD Estimates The actual - potential GDP Difference. Positive index means that actual output is higher than potential. * Mainland Norway

11 Stock Exchange Indices Percentage Change, end of period relative to end of previous period Additional Sources: TASE, Bloomberg

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13 Exports of Goods and Services As a share of GDP Effects of the global economic crisis

14 Main Trading Partners $ US Billions, 2013 * The data on trade with Hong-Kong is added to the data regarding China Source: Central Bureau of Statistics

15 Main Export Destinations As a share of total exports Source: Central Bureau of Statistics

16 Current Account Surplus As % of GDP Source: Central Bureau of Statistics

17 Foreign Investments $ US Billions * In 2006, a large acquisition by Teva Pharmaceutical Industries Ltd. was included in the data. Source: Central Bureau of Statistics

18 Exchange Rates 31 March 2014 vs 31 December 2013 Source: Pacific Exchange Rate Service The change in the specified currency relative to the $ US A decrease means an appreciation of the specified currency relative to the $ US

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

20 Israel’s Free Trade Agreements USA EFTA Turkey Canada Mexico European Union (Association Agreement) MERCOSUR QIZ Agreements Egypt Jordan More comprehensive information is available on the Israel Ministry of Finance websiteIsrael Ministry of Finance website Colombia*2013 * Yet to be ratified

21 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* South Korea Moldova *Comprehensive information is available on the Israel Ministry of Finance websiteIsrael Ministry of Finance website Macedonia*

22 Bilateral Investment Treaties *Comprehensive information is available on the Israel Ministry of Finance websiteIsrael Ministry of Finance website** Yet to be ratified South Africa** Slovakia Slovenia* Serbia Poland Romania Montenegro Thailand Turkey Turkmenistan Ukraine Uzbekistan Uruguay Myanmar**

23 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 WTO Regional Organizations Inter-Governmental Organizations Pacific Alliance (observer) More comprehensive information is available on the Israel Ministry of Finance websiteIsrael Ministry of Finance website

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25 Unemployment and Participation As % of total labor force Source: Central Bureau of Statistics Since the 2 nd quarter of 2009 unemployment is relatively decreasing, with a gradual increase in the participation rate since the beginning of 2010.

26 Unemployment Rate Latest available data Additional Sources: OECD

27 Effects of the global economic crisis Job Creation Change in the number of employees Annual average relative to previous year average. * January to February average seasonally adjusted. Source: Central Bureau of Statistics

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

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30 General Government Expenditure As % of GDP Source: CBS

31 General Government Tax Burden As % of GDP Source: Central Bureau of Statistics, OECD

32 General and Central Budget Deficit As % of GDP Source: CBS, MoF

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

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

35 Avoidance of Double Taxation More comprehensive information is available on 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 Malta

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

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

39 Interest Rate Source: Bank of Israel

40 Central Bank’s Interest Rates International Comparison Source: Specified Countries’ Central Banks

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42 Total industrial production grew by 3.8% Industrial Production Average Annual Growth average relative to 2004 average Source: Central Bureau of Statistics

Industrial Export Current U.S. $ Billions, and the share of high tech and mid high tech sectors in the Israeli goods exports % 72.5 % 75.4% 76.3% 76.6% 77.4% 80.9% 80% 79.5% 81% Source: Central Bureau of Statistics 83.6 % 80.4%

44 Israel is a World Leader in Science, Technology, and Innovation Source: OECD. * International Institute for Management Development (IMD) Global Competitiveness Yearbook ** World Economic Forum (WEF) Global Competitiveness Report Civilian R&D as % of GDP, 2011  1 st in R&D expenditure as % of GDP*  1 st in quality of scientific research institutions**  1 st in public expenditure on education*  1 st for innovative capacity*  2 nd for entrepreneurship being widespread amongst its managers*  5 th in PCT patents applications per million population**  6 th for strength of investor protection**  6 th for Nobel Prizes per capita in the fields of physics, chemistry, physiology, medicine and economics since 1950* Global Competitiveness Report “The country’s main strengths remain its world-class capacity for innovation (4th), 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 (5th). Its favorable financial environment, particularly evident in the ease of access to venture capital (8th), has contributed to making Israel an innovation powerhouse..”

The Institute for Management Development ranked Israel 19 th out of 60 countries for Israel has been ranked 1 st for innovative capacity and 4 th at economy resilience. Israel in IMD Rankings IMD World Competitiveness Yearbook 2013 Source: IMD World Competitiveness Yearbook (2) USA 1 (17) Finland 20 (19) Israel 19 (18) United Kingdom 18 (20) Ireland 17 (15) Australia 16 (14) Malaysia 15 (11) Netherlands 14 (12) Luxemburg 13 (13) Denmark 12 (7) Taiwan 11 (10) Qatar 10 (9) Germany 9 (16) UAE 8 (6) Canada 7 (8) Norway 6 (4) Singapore 5 (5) Sweden 4 (1) Hong Kong 3 (3) Switzerland 2

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 in IMD Rankings Source: IMD World Competitiveness Yearbook

Israel in WEF Rankings World Economic Forum Global Competitiveness Index Source: World Economic Forum Global Competitiveness Index The World Economic Forum ranked Israel 27 th out of 148 countries for in terms of competitiveness. The Forum also ranked Israel: 1 st in Quality of scientific research institutions 4 th in Capacity for Innovation 5 th in Firm-level technology absorption 6 th in Strength of investor protection 6 th in Nature of competitive advantage 6 th in Company spending on R&D 5 th in PCT patents, applications/million pop. And 8 th in Venture Capital Availability 47

48 Cooperation in Industrial R&D More comprehensive information is available on 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 Italy ( and Trento county) Germany Greece Czech Republic Bulgaria Lithuania Slovenia Denmark Hungary Turkey Portugal Finland Sweden Ireland Spain Cyprus Netherlands * Through EUREKA (40 country Multilateral Initiative) Asia China (Shanghai, Jiangsu, Shenzhen, Federal) India SIIRD-Singapore (Foundation) KORIL-RDF-Korea (Foundation)

Table of Contents Foreign Trade and Balance of Payment Labor Market Real Economy Fiscal Stance Innovative Economy Learn More Price Stability and Monetary Policy Table of Contents 1Main Indicators 9Contact

Learn More 50 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 51 Bank of Israel Ministry of Foreign Affairs Ministry of Economy Israel Central Bureau of Statistics Israel Government Portal Click to open:

Table of Contents Foreign Trade and Balance of Payment Labor Market Real Economy Fiscal Stance Innovative Economy Learn More Price Stability and Monetary Policy Table of Contents 1Main Indicators 9Contact

53 Mr. Oded Keneresh, CPA Mr. Daniel Hadow Ericson Dr. Amichai Fishler Overseas Economic Information Chief Economist Department Ministry of Finance State of Israel Send us an Visit our WebsiteWebsite Follow us on TwitterTwitter Follow us on LinkedinLinkedin Follow us on YouTubeYouTube Follow us on FlickrFlickr Subscribe to our RSS FeedsRSS Feeds Subscribe to our NewslettersNewsletters