1. The Israeli Economy

2. The Israeli Economy - 2009 Facts & Figures GDP ($Billion) 195.8 Population (7/2010, Million) 7.6 GDP per capita (2008, $ PPP) 27,900 Foreign Trade (% of GDP) 67% Total Exports (% of GDP) 35% Unemployment (7/2010) 6.2% The Israeli Industry Share of business sector 21% Industrial Sales ($Billion) 82.3 Industrial Exports (% of sales) 42.5% Employees360K Main branches: Chemicals, Electronics & Food 2 The Manufacturers' Association of Israel

3. The Israeli Economy: Before the Global Crisis The Manufacturers' Association of Israel 3

4. 5 Years of Rapid Growth in Israeli Economy 4 The Manufacturers' Association of Israel Source: CBS

5. 5 Years of Rapid Growth in Israeli Industry 5 The Manufacturers' Association of Israel Source: CBS

6. The Israeli Economy: During the Global Crisis The Manufacturers' Association of Israel 6

7. Positive Growth in Israel Vs. Regression in Most Developed Countries Source: Merrill Lynch 7 The Manufacturers' Association of Israel 0.7

8. Relatively Moderate Regression in Israeli Industry Source: OECD, CBS & MAI Economic Research Department 8 The Manufacturers' Association of Israel

9. Economic Policy During the Crisis

10. 10 Responsible Fiscal Policy Restrained Government Budgetary Deficit As Percentage of GDP Source: Bank of Israel The Manufacturers' Association of Israel * Estimate

11. Relatively Low Government Deficit in Israel Source: Eurostat, Israeli Ministry of Finance 11 The Manufacturers' Association of Israel

12. Round Table Forum Government Employers Employees Social Partnership Model

13. Israel Package Deal in 2009/10 Budget Purpose: Reduce impact of global crisis on the Israeli economy, while Supporting the business sector. Achievements: –Support for the business sector: Investment and direct support - $ 550 Million Increasing state guarantees - $ 1.5 Billion Increasing Medium-sized businesses fund - $ 325 Million –Increasing Domestic Demand: Potential of $ 1 Billion –Maintaining competitiveness: Preventing price increases - property tax, water, electricity, additional taxation - millions of $. The Manufacturers' Association of Israel 13

14. Interest Rates of Central Banks O ver the World Expanding Monetary Policy Interest Rates of Central Banks O ver the World % Crisis begins Northern Rock Lehman-Brothers collapse Israel Source: Bank of Israel 14 The Manufacturers' Association of Israel Exceptional measures: buying foreign currency & bonds

15. Additional Economic Measures Establishing funds to ease credit crunch Leadership statements : Ensuring public deposits in the banking system A safety net to ensure pension savings 15 The Manufacturers' Association of Israel No need to rescue financial institutions

16. The Israeli Economy Strengths

17. Independent of Outside Funding A Continuing Current Account Surplus Source: CBS & MAI Economic Research Department 17 The Manufacturers' Association of Israel

18. Export Oriented Growth in Industry 18 The Manufacturers' Association of Israel Source: CBS & MAI Economic Research Department

19. Diversion of Trade to Asian Countries 19 The Manufacturers' Association of Israel Source: CBS & MAI Economic Research Department

20. A High Tech oriented Growth - Most of Industrial growth derived from the High Tech Sector Contribution to Source: CBS & MAI Economic Research Department 20 The Manufacturers' Association of Israel

21. Relatively Low Household Debt in Israel Household Debt to Disposable Income Ratio 21 Source: Bank of Israel The Manufacturers' Association of Israel

22. Israel’s Unemployment rate is relatively low 22 The Manufacturers' Association of Israel Source: Eurostat, BLS, CBS

23. Relatively High Private Saving Rate in Israel Households Net Saving Rate as Percentage of Total Income, 2007 Source: Leumi Bank

24. The Banking System Conservative & Supervised 24 % Source: Bank of Israel The Manufacturers' Association of Israel

25. Bank Nonperforming Loans to Total Loans – Low Ratio in Israel 25 The Manufacturers' Association of Israel Source: IMF

26. Housing Prices - Relatively Moderate Increase 26 Source: Psagot Investment House The Manufacturers' Association of Israel Nominal Change in Average Apartment Price, 1997-2007

27. Upgrading International Status Late 2007 - Early 2008: Raising Israel credit rating by Standard & Poor's, Moody‘sו- Fitch. May 2010: Israel's admission to the OECD. May 2010: Updating Israel classification in MSCI index from a developing to a developed country The Manufacturers' Association of Israel 27

28. Responsible Fiscal Policy Persistence 2011-2012 Biennial Budget Increasing certainty and stability - Stimulating growth & investment Long-term planning - Improving the planning processes in government offices Reducing Political pressure and streamlining processes. New Formula to Limit Government Purpose: R educing Debt/GDP ratio while maintaining an adequate level of public services. Formula: The Manufacturers' Association of Israel 28 60% / (Actual Debt/GDP) X (Annual growth rate in the past 10 years) 60% = Target Debt/GDP Ratio According to Maastricht Treaty

29. How to Achieve Competitiveness after the Crisis? 1.Reduction of Corporate Tax 2.Nurturing Innovation 3.Increasing Efficiency

30. Continuous Reduction of Corporate Tax in Israel The Manufacturers' Association of Israel 30 Source: Israeli Ministry of Finance

31. How to Achieve Competitiveness after the Crisis? 1.Reduction of Corporate Tax 2.Nurturing Innovation 3.Increasing Efficiency

32. Nurturing Innovation = Israel’s Competitive Edge

33. World Leadership in Civilian R&D Investments Source: CBS 33 The Manufacturers' Association of Israel Israel 2008 – 4.7%

34. High Share of ICT in the Business Sector ICT= Information & Communications Technologies, 2006 Source: CBS 34 The Manufacturers' Association of Israel

35. Source: The Global Competitiveness Report 2010-2011, World Economic Forum High Quality of Scientific Research Institutions 35 The Manufacturers' Association of Israel

36. Highly Educated Population Source: OECD, CBS 36 The Manufacturers' Association of Israel

37. How to Achieve Competitiveness after the Crisis? 1.Reduction of Corporate Tax 2.Nurturing Innovation 3.Increasing Efficiency

38. Continuous Increase in Labor Productivity 38 The Manufacturers' Association of Israel Source: CBS & MAI Economic Research Department

39. Employment Flexibility During the Crisis 39 The Manufacturers' Association of Israel Real Decrease in Wages at the Israeli Business Sector Source: CBS & MAI Economic Research Department

40. Employment Flexibility During the Crisis 40 Source: MAI Economic Research Department, Survey - February 2009 The Manufacturers' Association of Israel Concentrated vacation Shortened workweek

41. How to Achieve Competitiveness after the Crisis? Israeli Economy Main Challenges Preserving the competitive advantage: R&D, technology, innovation Encouraging foreign direct investment ( Law Changes ) Upgrading the education system Upgrading infrastructures Reducing bureaucracy Encouraging entrepreneurship Raising employment rate The Manufacturers' Association of Israel 41

42. 2010 Forecasts

43. An Accelerated Growth is Expected in 2010 43 The Manufacturers' Association of Israel Source: CBS

44. Export Oriented Growth is expected in Israeli Industry, 2010 * Excluding Diamonds 44 The Manufacturers' Association of Israel Source: CBS & MAI Economic Research Department

45. Source: IMF & Bank of Israel 45 Relatively Low Unemployment Rate is Expected in Israel, 2011 The Manufacturers' Association of Israel

46. Israel’s Growth Outlook – Well Above Developed Countries Average Source: IMF, Merrill Lynch, March 2010. 46 The Manufacturers' Association of Israel

47. Thank you Manufacturers’ Association of Israel Daphna Aviram-Nitzan, Head of Economic Research Department Julie Sadeh Zeltcer, Head of Economics Analysis Section Hagit Shmariahu, Economist Eddie Parkansky, Economist Tel. 03-5198806 This publication is also available at the MAI site: www.industry.org.ilwww.industry.org.il For additional information please contact the Economic Research Department’s staff: 47