1 The Israeli Economy: High-tech and the Macro-Economic Outlook September 2012 Prepared by Gil Michael Bufman, Ph.D. Bank Leumi, Chief Economist

2 The Israeli Economy -- A High-Tech Little Giant: 1.Resilient macroeconomic fundamentals. 2.Substantial R&D investment with a sizeable spillover from defense R&D to civilian applications. 3.A high degree of international cooperation. 4.Highly skilled and motivated professionals. 5.A favorable composition of target markets. 6.An improvement in the degree of competitiveness.

3 Israel will continue to outpace OECD growth, albeit a drop from the growth rates of

4 FDI inflows have seen a rebound, but foreign party’s portfolio outflows have increased

5 The depreciation of the shekel will be beneficial for exports in 2013

6 Israel is a world leader in R&D; Aside from civilian R&D, there is a defense R&D that tends to spillover into civilian applications In 2009, 62% of Israel’s civilian R&D spending (US$4.7bn) took place in Israeli foreign owned companies. In addition, 92% of exported R&D services (US$3.4bn) originated from these companies.

7 Israel’s high-tech electronic goods exports are strongly correlated with high-tech activity in the US

8 In “good periods”, Israel’s high-tech electronic goods exports tend to surge upwards more substantially than high-tech activity in the US

9 Exports of high-tech services have grown substantially and are now equivalent in volume to the export of high-tech goods

10 The data on the ICT sector gives a good indication of areas of activity and export destinations countries

11 The Israeli Economy: High-tech and the Macro-Economic Outlook September 2012 Prepared by Gil Michael Bufman, Ph.D. Bank Leumi, Chief Economist