The Outlook for Israel s Economy in Light of Current Global Developments

Transcription

1 The Outlook for Israel s Economy in Light of Current Global Developments Dr. Leonardo Leiderman Professor of Economics, Tel-Aviv University and Chief Economic Advisor, Bank Hapoalim To be presented in Zurich, January 24, 2013

2 Israel s politics two days after elections

3 Is the worst over for global growth? Global growth IMF forecasts 6.0% 5.0% 4.0% V U 3.0% 2.0% 1.0% 0.0% W -1.0% Source: IMF

4 Central banks are doing whatever is needed to avoid a return to global financial crisis

5 Israel s economy: growth has moderated, but it s still higher than in most advanced economies 6% Israel GDP Growth Annual rate of change 5.8% 5.9% Israel s growth remains higher than most advanced economies 2013F GDP growth 4% 3.3% 5.1% 4.9% 5.0% 4.6% 3% 2.1% 4% 4.1% 3.3% 3.3% 2% 1% 1.0% 0.8% 0% 0.0% 2% -1% -0.5% -0.6% 1.1% -2% -1.6% 0% 04 ' 05 ' 06 ' 07 ' 08 ' 09 ' 10' 11 12E 13F Sources: CBS, IMF, Bank Hapoalim forecast

6 Israel s exports are well diversified Industrial exports excluding diamonds Exports to Asia are growing millions $, 3-month moving average Geographical composition January12-Oct. 12, excluding diamonds 1' Asia 21% USA 23% Others 25% EU 31% 200 Sources: CBS

7 Sound labor market Unemployment rates, quarterly figures Q12 (in %) Unemployment Rates (2012) France 10.1% Italy 10.5% Spain 24.9% UK 8.1% Israel Euro US /I 2008/I 2009/I 2010/I 2011/I 2012/I Sources: Bloomberg, Bank Hapoalim

8 Public sector debt: a positive fundamental A decreasing path of public debt % of GDP Public debt comparison % of GDP Domestic Debt Foreign Debt US EURO ISRAEL ' 01 ' 02 ' 03 ' 04 ' 05 ' 06 ' 07 ' 08 ' 09 ' 10' Source: IMF & Bank Hapoalim forecast

9 Favorable external position Current account balance in millions of USD and as a % of GDP Large FX reserves at the Bank of Israel USD billion 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% -6.0% -5.0% -4.9% Source: CBS -3.0% -0.9% 0.6% -1.7%-1.6%-1.7% 0.5% 1.7% 3.1% 4.9% 2.7% 1.1% 3.8%3.8% 0.8% -0.9%-0.8% 95 ' 96 ' 97 ' 98 ' 99 ' 00 ' 01 ' 02 ' 03 ' 04 ' 05 ' 06 ' 07 ' 08 ' 09 ' 10' 11 12E13F Source: BOI

10 120 Israel s stock market prices are again highly correlated with world equity markets Dollar terms, 01/2012= MSCI WORLD TA Source: Bloomberg 10

11 Israel s country risk premium is quite low CDS on 5 year Israel government bonds (issued in USD) Sources: Bloomberg

12 Special Topics Natural gas production Labor force participation Middle class protest Housing prices High tech Overall satisfaction from life in Israel

13 The impact of natural gas production New natural gas resources have been discovered on the Israeli coast with amounts estimated at 760 BCM (27 TCF), The estimated value of the deposits is $130 bn. These amounts could meet Israel's NG needs for decades to come and the surplus could be exported. We expect some 2.5 bn dollar saving in imports, which amounts to 20% saving of energy imports. This should boost growth by some 1%, and bring the C/A back to surplus.

14 Israel has a relatively young population 65.0 Old age dependency ratio Old age dependency ratio - the ratio of population above age 65 divided by population at working age of years India China Korea Israel Ireland US UK Spain Germany Japan Switzerland Sweden Source: Human Development Report

15 Increasing labor force participation Distribution of population by groups, % Participation in the labor force 65% Jews and others 64% 63.6% 64.2% Ultraorthdox Arabs 63% 62% 62.8% 61.8% 62.3% 62.9% 62.6% 62.6% 62.6% 62.5% 62.8% 61.9% 61.9% 61% 60% 2009 Q3 Q Q1 Q2 Q3 Q Q1 Q2 Q3 Q Q1 Q2 Q3

16 Middle class protest on social issues The protest was mainly around the cost of living and particularly the high level of housing prices. The Trachtenberg committee recommendations were focused on 2 issues: free education from the age of 3 and a change in tax policy. The committee did recommended about issues like public housing and competitiveness, but practically these parts of the report, were more like a long run vision rather than operational. The recommendations regarding education and taxes were mostly implemented. The change in the atmosphere and administrative actions made by the government, led to price reduction in some sectors, most notable, in the cellular industry. Housing prices continued to rise moderately since then.

17 Attempting to lower housing prices: a major challenge for the new government 9 Years of work needed to purchase a housing unit 220% Rise in housing prices from trough to peak Spain - Ireland (97-05), US (till 2006), Israel (07-12) % % 120% 134% 145% 154% % 70% % 0 US Canada Ireland UK New-Zealand Australia Israel -30% Israel US Spain UK Ireland Source: Economist, CBS, Taub Center

18 Israel s high tech remains a key growth engine Quality of Scientific Research Institutions Rank Country/Economy Value Mean: Israel Switzerland United Kingdom Sweden Belgium Qatar United States Netherlands Canada Germany 5.6 Brainsway: Deep-TMS Source: World Economic Forum, Global Competitiveness Index,

19 People in Israel are quite happy and satisfied with their lives Indices for 2010, measured on a scale from 0 to 10 Do you like your job? How s your health? Are you spending 9 enough time each day with your children? When you need them, are your friends there for you? Can you trust your 8 neighbors? And how satisfied are you, overall, with your life? Source: OECD, How s life, Measuring well-being

20 Thank You!

21 Appendix: Basic Facts about Israel s Economy Israel s economy grew in Q3 at an annual rate E 2013F of 2.8%, which implies over 3 in According to our expectations, growth may Gross domestic product 4.6% 3.3% 3.3% decelerate in the near future. Per capita GDP 2.7% 1.5% 1.5% The labor market is still sound: Unemployment was quite stable and wages increased. Current fiscal trends imply a budget deficit of 4.2% of GDP for this year, mainly due to lower Business sector GDP Unemployment (annual average) 5.1% 7.0% 3.2% 7.1% 3.7% 7.3% tax receipts. Housing prices rose and the central bank issued new directives on the mortgage market. BOI rate decreased to 1.75% in January. We Budget deficit (% of GDP) Inflation (end of period) 3.3% 2.2% 4.2% 1.3% 4.0% 2.0% expect no further change in the coming 12 months. Bank of Israel interest rate (end of period) 2.75% 2.0% 1.75% Sources: CBS. BoI, Bank Hapoalim Forecast