1. Israel’s Economic Outlook and Financial Policy Settings: the View from the OECD Peter Jarrett Presentation to the Globes Business Conference 11 December 2011 1

2. Better-than-average GDP growth 2 Year-on-year percentage change

3. Domestic demand remains robust 3 Year-on-year percentage change

4. Investment is still buoyant 4 Year-on-year percentage change

5. The labour market is performing well 5 Per cent

6. The output gap is near zero 6 Deviation from GDP trend (%)

7. External trade is weakening 7 Year-on-year percentage change

8. But unexceptional per capita GDP performance 8 Gap to the upper half of OECD countries

9. And very high and rising poverty rates 9

10. Short-term economic outlook 1.Contributions to changes in real GDP (percentage of real GDP in previous year). 2.As a percentage of GDP. 3. Excluding Bank of Israel profits and the implicit costs of CPI-indexed government bonds. 10 2007200820092010201120122013 Current prices Percentage changes, volume (2005 prices) NIS billion Real GDP686.54.00.84.84.72.93.9 Total domestic demand696.72.1-0.24.77.23.24.2 Export of goods and services291.36.6-11.913.64.83.97.8 Imports of goods and services301.62.2-14.012.812.75.28.3 Net exports 1 -10.21.81.00.6-2.7-0.6-0.4 Memorandum items: Consumer price index-4.63.32.73.52.02.1 Unemployment rate-6.17.66.65.66.05.8 General government financial balance 2,3 --3.8-6.4-5.0-4.0-3.8-3.5 General government gross debt 2 -77.079.476.074.673.872.4 Current account balance 2 -1.13.53.0-0.8-1.4-1.7

11. Inflation outcomes and policy rates 11 Year-on-year percentage change in prices

12. The exchange rate and currency purchases 12

13. Foreign exchange reserves are high 13 Per cent of GDP

14. Only business debt has been rising 14

15. Banks have shifted to housing loans 15

16. The expansion of the corporate bond market 1. Left axis 16

17. Banking-sector risk and capital adequacy 17

18. Net pension replacement rates 1 1.The simulation assumes individuals starting full-time careers at age 20. 2.Unweighted average. 3.OECD average excluding highest ten. 18 Highest ten OECD countries and Israel, including second-pillar pensions

19. Some other financial-sector advice Take further macro-prudential actions if the housing market does not manage a soft landing Strengthen co-ordination in financial supervision As regards specific financial products: Proceed cautiously with securitisation Regulate bond markets more strictly if fragilities persist Reform taxation of second-pillar pension saving Do not raise mandatory pension provisions any further 19

20. Influential business groups are not unusual The stock-market share of the 20 largest family/business groups

21. Thank you! 21