Economics Department 11

27/11/02

The Israeli Economy:

Facts and Prospects
Presentation for the
Italian Delegation to the Tel Aviv
Convention

by Ephraim Toaff, PhD

December 2002
Economics Department 22
27/11/02 GDP Per-Capita
$ thousands, The EIU forecast for 2002

40
35
30
25
20
15
10
5
0
USA

U.K.

Israel
Switzerland

Canada

France

Italy

Greece

Russia

China
Denmark

Japan

Germany

Spain
Economics Department 33
27/11/02
GDP Growth
8%
7%
6%
5%
4%
3%
2%
1%
0%
-1%
-2%
1987

1989

1996

1998
1986

1988

1990

1991

1992

1993

1994

1995

1997

1999

2000

2001

2002

2003*
* forecast
Economics Department 44
27/11/02

National Accounts
real rate of change
Quarters

2000 2001 *2002 *2003 Q1/02 Q2/02 Q3/02

Gross Domestic Product 7.4% -0.9% -0.9% 1.5% 2.4% -0.7% 0.5%
GDP per Capita 4.6% -3.2% -2.9% -0.5% 0.6% -2.4% -1.4%
GDP - Business Sector 9.7% -2.4% -2.9% 1.7% 0.3% -0.8% 0.0%
Private Consumption 7.2% 2.5% -0.2% 2.5% 0.0% -4.6% -0.8%
Government consumption 1.3% 3.3% 6.5% 1.0% 13.8% 5.6% -2.6%

Investment in Fixed Assets 1.7% -6.1% -6.3% 0.6% -6.2% 4.8% -17.0%

Exports of Goods and Services 25.3% -11.7% -5.0% 4.0% -5.4% 15.5% -16.6%
Imports of Goods and Services 12.3% -4.5% -2.0% 3.5% 4.6% 16.6% -23.6%
Economics Department 55
27/11/02
Growth
quarterly data, in annual terms
10%
8% %2.6 %7.4
6%
4%
%2.4
2%
0%
-0.9%
-2%
-4% -0.9%
-6%
-8%
-10%
Economics Department 66
27/11/02
Private Consumption
1998=100
300

Durable goods
250

200

150 Personal
Total consumption transport
100 equipment

50

0
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Economics Department 77
27/11/02

Unemployment Rate and the Number of Employees

Unemployment Rate Thousands of Employees

12% 2,400

10% 1,800

8% 1,200

6% 600

4% 0
96

97

0
01
85

86

87

88

89

91

92

93

94

95

98

99

02
9

.0
1.
1.

1.

1.

1.

1.

1.

1.

1.

1.

1.

1.

1.

1.

1.

1.

1.
'1
Economics Department 88
27/11/02
The Labor Market
Unempl
Unemplo oyed
Participatio yment person Employ Labor Population
n rate rate s ment force aged 15+ Population Immigration
(2+3)/1 3/(2+3) 3 2 2+3 1

53.4% 7.6% 165 2,040 2,205 4,129 5,829 66.2 1997

53.5% 8.5% 193 2,074 2,266 4,243 5,971 56.7 1998
53.8% 8.9% 209 2,137 2,345 4,358 6,125 76.8 1999
54.3% 8.8% 214 2,221 2,434 4,487 6,289 60.1 2000
54.3% 9.4% 235 2,265 2,500 4,605 6,439 43.6 2001
54.0% 10.6% 269 2,272 2,541 4,706 6,568 30 * 2002
54.0% 10.8% 281 2,317 2,597 4,810 6,699 30 *2003
% change

16.9% 1.8% 2.8% 2.8% 2.4% -14.3% 1998

8.2% 3.1% 3.5% 2.7% 2.6% 35.4% 1999
2.5% 4.1% 3.8% 2.9% 2.7% -21.7% 2000
9.9% 2.0% 2.7% 2.6% 2.3% -27.5% 2001
14.6% 0.3% 1.7% 2.2% 2.0% -31.2% *2002
4.1% 2.0% 2.2% 2.2% 2.0% 0.0% *2003
Economics Department 99
27/11/02

The Development of Wages

constant prices, 12 months moving average
8000 Average wage
Public sector
7500 Business sector

7000

6500

6000

5500
1,997 1,998 1,999 2,000 2,001 2,002
 10
10
Economics Department
27/11/02

Export of Goods and Services

real rate of change
30%
Export of goods and services
25% World trade volume
20%

15%

10%

5%

0%

-5%

-10%

-15%
1995 1996 1997 1998 1999 2000 2001 2002* 2003*
 11
11
Economics Department
27/11/02

Tourist Arrivals by Air in Israel

250
thousands per month
The Papal Visit
200

150

100 Terror Attacks

Achille Laura Intifada

50
Gulf War
0
84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 '00 '01 '02
 12
12
Economics Department
27/11/02

Inflation
25%

20.7 % 18.1 %
20% 19.6 %
18.0 %
17.6 %
16.4 %
16.1 %
15% 14.5 % 9.9 %
9.4 % 11.2 % 10.6 %
10% 8.6 %
8.1 % 7.5 %
7.0 %
2.7%
5% 3.5 %
1.3 % 1.4 %
0.0 %
0%
86 88 90 92 94 96 98 '00 '02*

* forecast
 13
13
Economics Department
27/11/02
Budget Deficit
% of GDP
5%

4%

3%
Maastricht criteria

2%

1%

0%
1994 1995 1996 1997 1998 1999 2000 2001 2002*

* forecast
 14
14
Economics Department
27/11/02
Government Debt
% of GDP

160
140
Foreign
46
120
43 39 Domestic
33 30 32 32
100 30
27 26 26 29 28
26 26
80 24

60 109 104 104 99 97 93 90

40 84 79 78 76 76 75
72 66 69
20
0

2
90
87

88

89

91

92

93

94

95

96

97

98

99

00

Ju 01
-0
19
19

19

19

19

19

19

19

19

19

19

19

19

20

20
ne
 15
15
Economics Department
27/11/02

Defense Consumption
% of GDP
 16
16
Economics Department
27/11/02

Balance of Payments
$ millions

1998 1999 2000 2001 H1/2001 H1/2002 *2002 **2003

Export of goods & services 35,175 39,576 49,481 43,214 22,778 19,964 39,871 41,481
Import of goods & services -42,581 -49,169 -57,925 -51,464 -26,771 -24,801 -49,818 -51,562
Net import -7,406 -9,593 -8,444 -8,250 -3,993 -4,837 -9,947 -10,081
Current transfers 6,080 6,316 6,469 6,399 2,835 2,910 6,516 6,300
Capital transfers 577 569 455 681 253 -76 105 200
Current account -1,326 -3,277 -1,975 -1,851 -1,158 -1,927 -3,431 -3,781
Current and capital account -749 -2,708 -1,520 -1,170 -905 -2,003 -3,326 -3,581
Direct Investment in Israel 1,737 2,873 4,524 3,224 1,974 585
Direct Investment abroad -1,125 -933 -2,859 -1,135 -701 -451

Portfolio investment - liabilities 2,399 2,598 5,086 290 1,274 771

Portfolio investment - assets 106 -830 -2,139 -1,199 -206
= -468

Statistical discrepancies 1,305 587 -1,624 1,391 1,400 1,624

Net liabilities 11,108 9,610 6,060 3,049 3,474 1,699

* CBS estimation
** forecast
 17
17
Economics Department
27/11/02

Current Account Deficit

million of dollars and % of GDP
2 6%
1.3
1 4%
0.2 0.2
0
2%
-1 -0.8 -0.9
-1.3 -1.3
0%
-1.4
-2 -1.9
-2.0
-2.4
-2%
-3
-3.4 -3.3 -3.4 -4%
-4 -3.7
-4.0
-5 -6%
-5.0

-6 -5.6 -8%

*
86

87

89

91

94

97

98

99

01

02
88

90

92

93

95

96

00

03
19

19

19

19

19

19

19

19

20

20
19

19

19

19

19

19

20

20
* forecast
 18
18
Economics Department
27/11/02 Foreign Investment
millions of dollars
12,000
Foreign Investment in Israel

10,000 Israelis’ Investment. Abroad

Net Investment. in Israel
8,000

6,000

4,000

2,000

-2,000
1995 1996 1997 1998 1999 2000 2001 2002*
* annual terms according to first 9 months
 19
19
Economics Department
27/11/02 Foreign Investment
3000
millions of dollars
Foreign Investment in Israel
2500
Israelis’ Investment. Abroad
2000
Net Investment. in Israel
1500
1000
500

0
-500
-1000
-1500
Q3-00 Q4-00 Q1-01 Q2-01 Q3-01 Q4-01 Q1-02 Q2-02 Q3-02
 20
20
Economics Department
27/11/02
Foreign Debt
% of GDP

140
120
100
80
Gross
60
40
20 Net
0
75 77 79 81 83 85 87 89 91 93 95 97 99 2001
 21
21
Economics Department
27/11/02

Interest Rates Differential

14%

12%
BOI Monetary Lending Rate
10%

8% Interest Rates
Differential
6%

4%

2%
Federal Funds
0%
12.99 12.00 12.01
 22
22
Economics Department
27/11/02
Exchange Rate
6.0
5.5 6%
5.0
Basket
4.5
7%
4.0
0%
2%
3.5 Dollar
4%
3.0 7%
2.5
2.0
 23
23
Economics Department
27/11/02

Inflation, Exchange Rate and Budget Deficit

1998 1999 2000 2001 2002* 2003*

Inflation and the exchange rate (Dec./Dec.)

Consumer price index 8.6% 1.3% 0.0% 1.4% 7.2% 3.5%
Wholesale price index of industrial
output 8.2% 3.5% 3.0% -1.9% 7.5% 2.5%
Devaluation of the NIS -vs- currency
basket 20.6% -2.5% -6.3% 3.7% 15.0% 4.0%

The budget

Total deficit in budget 2.4% 2.5% 0.7% 4.50% 4.5% 3.5%

** Excluding net credit

* forecast
 24
24
Economics Department
27/11/02

CPI Linked Bond Yields

8%

7%

6%

5%

4%

3%

2%
5 years to maturity
1%
10 years to maturity
0%
 25
25
Economics Department
27/11/02
Non - Linked Bond Yields
10 years to maturity
14
12

10

6
4

2
0
2001.05 2001.11 2002.05 2002.11