1. Global Outlook, Spillovers, and Vulnerability in Israel M.K. Tang (IMF) May 5, 2009

2. Roadmap  Outlook for the world economy  Impact on Israel  Constraints on Israel’s fiscal options and implications for fiscal rules

3. Free Falling Activity

4. Extent of Crisis Catching Forecasters Off-guard

5. Deep Recession, Tepid Recovery… Source: WEO April 2009

6. …with Substantial Downside Risks Source: WEO April 2009

7. Global Downturn Weighs on Israel

8. 1. Trade Linkages

9. 2. External Asset Exposures

10. Main External Determinants

11. Strength of Spillovers

12. Counteractive Policy Reponses Can Boost Recovery Source: WEO April 2009

13. Israel’s External Position Robust

14. But Some Market Signs of Discomfort...

15. …as Fiscal Sustainability a Concern… Source: IMF

16. …and Global Financial Flows Could be Fragile

17. Implications for Fiscal Rules  Economic gloom and uncertainty on near- term horizon  Automatic stabilizers could cushion the blow, even so financing risks nontrivial  Benefits of structural fiscal loosening hinge on impacts on sustainability and market confidence