Economic Highlights Presentation 2 nd Quarter 2013 ( As of July 1 th ) 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

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3 Economic Figures *Using a periodic average exchange rate. ** For available months Criteria Q22012 Q32012 Q42013Q12013Q2 GDP (Current prices in $B)* Real GDP growth rate (% change) 4.6%3.2%2.6%2.8%2.6%2.7%- GDP per capita (Current $) 31,419$30,476$7,685$7,547$7,643$7,893$- GDP per capita growth rate (%, 2005 prices) 2.7%1.3%0.9% 0.5%0.9%- Exports (goods & services), $B* (As % of GDP) % % % % % % - Imports (goods & services), $B* (As % of GDP) % % % % % % - Unemployment rate**7.1%6.9% 6.8% 6.6%6.9% Sources: CBS, IMF

4 Economic Figures Criteria Public debt (As % of GDP) 78.6%77.4%79.6%76.3%74.0%73.2% General government expenditure (As % of GDP) 45.2%44.3%44.5%43.8%43.4% Current account surplus (As % of GDP) 3.2%1.4%4.1%3.3%1.3%0.4% Inflation rate (CPI, yearly average, % change) 0.5%4.6%3.3%2.7%3.5%1.7% Budget deficit (As % of GDP) 0.0%2.2%5.1%3.7%3.3%4.2% * MoF Estimates

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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 Stat 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 1.1% growth in it’s GDP. * MoF forecast, Euro stat and OECD forecast

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

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

10 Output Gap As percentage of Potential GDP, 2012 Additional Sources: OECD Estimates The actual - potential GDP Difference. Positive index means that actual output is higher than potential.

11 Stock Exchange Indices Percentage Change, end of period relative to end of previous period Additional Sources: TASE, Bloomberg * The change since the beginning of 2013 till the end of the specified quarter.

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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, 2012 * 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 * Relates to January-April 2013

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 30 June 2013 vs 31 December 2012 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 QIZ Agreements USA EFTA Turkey Canada Mexico European Union (Association Agreement) MERCOSUR Egypt Jordan More comprehensive information is available on the Israel Ministry of Finance websiteIsrael Ministry of Finance website

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* 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 South Africa* Thailand Slovakia Slovenia* Serbia Poland Romania Montenegro Turkey Turkmenistan Ukraine* Uzbekistan Uruguay

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 Regional Organizations Inter-Governmental Organizations 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 *Available data.

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. * April to May average. Source: Central Bureau of Statistics

28 Employment Rate 15+, latest available quarterly data Additional Sources: OECD, Euro Stat

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30 General Government Expenditure As % of GDP Source: Central Bureau of Statistics

31 General Government Tax Burden As % of GDP OECD countries average: 33.8% (2011 average) Source: Central Bureau of Statistics, OECD

32 General and Central Budget Deficit As % of GDP

33 Public Debt As % of GDP Effects of the global economic crisis

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

35 Israel’s Credit Ratings Overseas Bonds Forecast Domestic Bonds TermRating Firm Rating A1 Stable A1Long Moody's P1-Short A+A+ Stable A+Long Standard & Poor's A-1A-1+Short A Stable A+Long Fitch F1-Short Updated to mid-September, 2012 Nov 2007 S&P upgrades Israel To A Nov 2007 S&P upgrades Israel To A April 2008 Moody’s upgrades Israel To A1 April 2008 Moody’s upgrades Israel To A1 Sep 2011 S&P upgrades Israel To A+ Sep 2011 S&P upgrades Israel To A+ Feb 2008 Fitch upgrades Israel To A Feb 2008 Fitch upgrades Israel To A

36 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

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 Africa Spain Sweden Switzerland Thailand Netherlands Turkey Ukraine UK Uzbekistan USA Taiwan Vietnam Mexico South Korea Panama 37

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

40 Interest Rate Source: Bank of Israel

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

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43 Total industrial production grew by 3.9% Industrial Production Annual Growth, 2013 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% 75.3% 75.4% 76.3% 76.7% 77.4% 80.9% 80.3% 80.1% 79.5% Source: Central Bureau of Statistics 80.6% * 2013 available months at annual rate

45 Israel is a World Leader in Science, Technology, and Innovation Source: OECD Science, Technology and Industry Scoreboard * International Institute for Management Development (IMD) Global Competitiveness Yearbook ** World Economic Forum (WEF) Global Competitiveness Report Civilian R&D as % of GDP, 2009  1 st in R&D expenditure as % of GDP*  1 st in quality of scientific research institutions**  1 st for entrepreneurship being widespread amongst its managers*  2 nd in public expenditure on education*  3 rd in venture capital availability**  4 th in PCT patents applications per million population**  5 th for strength of investor protection**  6 Israelis in the last 10 years have been awarded Nobel Prizes in the fields of Economics or Chemistry Global Competitiveness Report “The country’s main strengths remain its world-class capacity for innovation (3rd), 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 (4th). Its favorable financial environment, particularly evident in the ease of access to venture capital (3rd), has contributed to making Israel an innovation powerhouse..”

The Institute for Management Development ranked Israel 19 th out of 59 countries for Israel has been ranked 1 st at entrepreneurship and 9 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 IMD World Competitiveness Yearbook 2012 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 26 th out of 144 countries for in terms of competitiveness. The Forum also ranked Israel: 1 st in Quality of scientific research institutions 3 rd in Venture capital availability 4 th in PCT patents, applications/million pop. 5 th in Strength of investor protection 5 th in Firm-level technology absorption 6 th in Capacity for innovation 6 th in Company spending on R&D And 8 th in University-industry collaboration in R&D 48

49 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 51 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 52 Bank of Israel Ministry of Foreign Affairs Ministry of Industry, Trade and Labor Israel Central Bureau of Statistics Israel Government Portal Click to open:

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54 Mr. Roni Hershkovitz Mr. Ori Kaufman Dr. Amichai Fishler Overseas Economic Information Economics and State Revenue Department Ministry of Finance State of Israel Write 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