October 4 th 2011 The Israeli Economy

GDP ($Billion) 218 Population (7/2011, Million) 7.8 GDP per capita ($) 28,575 Foreign Trade (% of GDP) 72% Total Exports (% of GDP) 37% Unemployment (7/2011) 5.4% The Israeli Industry Share of business sector 21% Industrial Sales ($Billion) 95 Industrial Exports (% of sales) 43% Employees350K Main branches: Chemicals, Electronics & Food 2 The Israeli Economy – 2010 Facts & Figures The Manufacturers' Association of Israel

Israeli Economy Strengths The Manufacturers' Association of Israel 3

The Resilience of Israeli Economy during 2008/9 Global Crisis Positive Growth in Israel Vs. Regression in Most Developed Countries 4 The Manufacturers' Association of Israel

A Short Recession in the Israeli Economy During 2008/9 Global Crisis The Manufacturers' Association of Israel 5

Relatively Moderate Regression in Israeli Industry during 2008/9 Crisis Source: OECD, CBS & MAI Economic Research Department The Manufacturers' Association of Israel 6

Export Oriented Growth 7 The Manufacturers' Association of Israel

Strong starting point Rapid Growth in Israeli Economy The Manufacturers' Association of Israel 8

A Continuous Decrease in Unemployment Rate 9 The Manufacturers' Association of Israel * M.A.I Economic Research Department early estimates.

Independent of Outside Funding A Continuing Current Account Surplus Source: CBS & MAI Economic Research Department The Manufacturers' Association of Israel10 The combination of a continual surplus in the current account and the large amount of foreign currency reserves, enable Israel to provide its import needs without dependence on external financing.

High Private Saving Rate in Israel The Manufacturers' Association of Israel 11 Source: OECD & CBS Household saving rates - Percentage of disposable household income, 2009

Bank Regulatory Capital to Risk- Weighted The Manufacturers' Association of Israel 12 Source: IMF

Bank Nonperforming Loans to Total Loans -Low Ratio in Israel 13 The Manufacturers' Association of Israel Source: IMF

Nominal Change in Average Apartment Price, Real Estate Prices Before 2008/9 Crisis: Relatively Moderate Increase Source: Psagot Investment House The Manufacturers' Association of Israel 14

House Prices 15 The Manufacturers' Association of Israel Source: OECD, CBS

High Share of ICT in the Business Sector ICT= Information & Communications Technologies, 2006 Source: Israeli CBS The Manufacturers' Association of Israel 16

The High Tech Sector Contribution to Industrial Growth The Manufacturers' Association of Israel – Q2/2011 Including 8/2011))

Global R&D and Innovation Center 18 The Manufacturers' Association of Israel

World Leadership in Civilian R&D Investments Source: Israeli CBS The Manufacturers' Association of Israel 19

Diversion of Trade to Asian Countries The Manufacturers' Association of Israel 20

Employment Flexibility The Manufacturers' Association of Israel Real Decrease in Wages at the Israeli Business Sector During 2008/9 Global Crisis 21 Extraordinary measures during 2008/9 crisis including: 1.Reducing Overtime 2.Concentrated Vacation 3.Non Payment Vacation 4.Shortened Workweek

18,000 employees were fired +128,000 employees אגף כלכלה 22 Relatively moderate Dismissals During 2008/9 Global Crisis Workers in the Business Sector

Responsible Fiscal Policy Restrained Government Budgetary Deficit The Manufacturers' Association of Israel 23 Source: Ministry of Finance

Relatively Low Government Deficit in Israel Source: Eurostat, IMF, MOF The Manufacturers' Association of Israel 24

Continuous Reduction of Public Debt Ratio The Manufacturers' Association of Israel Source: Ministry of Finance 25

Relatively Low Public Debt Ratio The Manufacturers' Association of Israel Source: Ministry of Finance, Eurostat, IMF 26

INDUSTRIAL COMPANIES WITH EXPORT CAPABILITY :15% - 10% : 7% % 2015: 6% - 12% INDUSTRIAL COMPANIES WITH EXPORT CAPABILITY :15% - 10% : 7% % 2015: 6% - 12% Source: KPMG, Corporate Tax

Israeli Economy Weaknesses The Manufacturers' Association of Israel 28

The Manufacturers' Association of Israel 29 Gini Index in the OECD Source: OECD

Relatively Low Employment Rate 30 The Manufacturers' Association of Israel Source: OECD

Standard of Living Relatively Low GDP Per Capita 31 The Manufacturers' Association of Israel

The Background to the Protests: High Cost of Living The Manufacturers' Association of Israel

The Food Prices The Manufacturers' Association of Israel

Cost of Living Number of Salaries Required to Buy… 34 The Manufacturers' Association of Israel Source: BDO, Ziv Hatf, According to an average salary. To Buy an Apartment To Buy a Car* * Mazda 3

Indirect Tax Burden 35 The Manufacturers' Association of Israel

Opportunities Threats 2012

2012 Threats Expected slowdown in global trade expansion rate High Level of commodity prices is expected Weak Starting point in Industrial Exports Wage pressures A slow down in Domestic demands Trachtenberg Committee Recommendations Increase in government –controlled costs Geopolitical instability Off-shoring The Manufacturers' Association of Israel 37

38 “Decrease of 2% in world trade = Decrease of 2% in Israeli export = Decreases of 0.4% in GDP”. Bank of Israel, September 2011 An Expected Slowdown in World Trade

Stability on high level in raw materials prices

Industrial Export (excl. diamonds) אגף כלכלה 40

Most of the increase in the Industrial Export derives from the High Tech sector 41 Cumulative decrease of 5% in the Industrial Export

Industrial Production 42 The Manufacturers' Association of Israel

Employees in the Industry 43 The Manufacturers' Association of Israel 1,500 new employees The total number of employees in industry is still lower by 2% compared to Q1/08

Employees in the Industry by Branches 44 The Manufacturers' Association of Israel

45 Real Wage in Industry

Continuous Difficulty in Recruiting Professional Employees to Industry 46

An additional wage updates are expected 47 The Manufacturers' Association of Israel due to the Minimum Wage Update January ,850 NIS April 20113,890 NIS July 20114,100 NIS October 20124,300 NIS

48 Source :OECD Minimum Wage

Revenue of All Industries 49

Financial Assets Held by The Public אגף כלכלה 50

A Slowdown in Industrial Growth M.A.I estimates for

Tax Reform Path Reducing Direct Taxes The Manufacturers' Association of Israel 52 Freezing corporate tax reform

53 Source: Off shoring Survey, Manufacturers’ Association of Israel. July Within 2 years 53% of industrial companies will have productive activity abroad Shifting Production Lines Abroad

אגף כלכלה Continuous growth in emerging markets Continuous increase in domestic demand Attractive taxation path (?) Fiscal discipline + bi annual budget Employers – employees co-operation No Inflationary pressures A Renewed Depreciation of the NIS A Renewed Depreciation of the NIS Credit rating upgrade by S&P Local Global 2012 Opportunities

Global Growth Forecast 55

A continuous rise in the activity of the Hi.Tech sector in the US

Factors supporting the continuation of increasing demand Raising wages Decline in unemployment rate Relatively Low Real interest rate

58 Inflation in Israel

Expected Rate of Inflation Source: Bank of Israel, mean of the inflation forecasts of the commercial banks and economic consultancy companies

Since June A Sharp Depreciation Compared to Main Competitors Main Importers to USA

Exchange rates Forecasts Source: Jonathan Katz

S&P Credit Rating Upgrade 62 The Manufacturers' Association of Israel S&P mentioned that their ratings on Israel are supported by their view of its "prosperous and resilient economy, strong institutions, ongoing fiscal consolidation, and robust external performance." September Standard & Poor's Ratings Services (S&P) raised its long-term foreign currency sovereign credit ratings on the State of Israel to A+ from A.

Macroeconomic Forecast for 2012

Israeli Economy 2012 Forecast 64 The Manufacturers' Association of Israel ** Bank of Israel Forecast, 22/9/2011 Real Annual Changes in GDP

Thank you Daphna Aviram-Nitzan Head of Economic Research Department Manufacturers' Association of Israel Tel Mobile: