The Israeli economy: Trends and Outlook. 4th quarter of 2017

Transcription

1 The Israeli economy: Trends and Outlook 4th quarter of 2017

2 Outline Factsheet Recent economic trends Fiscal indicators Economic Outlook

3 Israel Factsheet Sources: Israeli CBS, BoI Economy Population Labor Market External Account

4 Israel Factsheet Economy (2017) Population GDP, current Billion USD GDP, current Billion NIS 1,262 GDP per capita, current USD 40,289 Real GDP growth (latest 5 year average, %) 3.5 Average real yearly growth forecast ( , %) 3.1 Labor Market Sources: Israeli CBS, BoI External Account

5 Israel Factsheet Economy (2017) Population (2017) GDP, current Billion USD Total population (Millions) 8.7 GDP, current Billion NIS 1,262 Main working ages (%) 45 GDP per capita, current USD 40,289 Ultra-Orthodox Jews (ages 25-64, %) 7 Arab Minority (ages 25-64, %) 18 Jews (excl. Ultra-Orthodox) and others (ages 25-64, %) 75 Population growth (latest 5 year average, %) 2.0 Real GDP growth (latest 5 year average, %) Average real yearly growth forecast ( , %) Labor Market Sources: Israeli CBS, BoI External Account

6 Israel Factsheet Population (2017) Economy (2017) GDP, current Billion USD Total population (Millions) 8.7 GDP, current Billion NIS 1,262 Main working ages (%) 45 GDP per capita, current USD 40,289 Ultra-Orthodox Jews (ages 25-64, %) 7 Arab Minority (ages 25-64, %) 18 Jews (excl. Ultra-Orthodox) and others (ages 25-64, %) 75 Population growth (latest 5 year average, %) 2.0 Real GDP growth (latest 5 year average, %) Average real yearly growth forecast ( , %) Labor Market (2017) External Account Participation rate (ages 15+, %) 64.0 Participation rate (ages 25-64, %) 80.0 Unemployment rate (ages 15+, %) 4.2 Unemployment rate (ages 25-64, %) 3.7 Part-time workers (ages 15+, %) 25.2 Sources: Israeli CBS, BoI

7 Israel Factsheet Population (2017) Economy (2017) GDP, current Billion USD Total population (Millions) 8.7 GDP, current Billion NIS 1,262 Main working ages (%) 45 GDP per capita, current USD 40,289 Ultra-Orthodox Jews (ages 25-64, %) 7 Arab Minority (ages 25-64, %) 18 Jews (excl. Ultra-Orthodox) and others (ages 25-64, %) 75 Population growth (latest 5 year average, %) 2.0 Real GDP growth (latest 5 year average, %) Average real yearly growth forecast ( , %) Labor Market (2017) Participation rate (ages 15+, %) External Account (2017) 64.0 Participation rate (ages 25-64, %) 80.0 Unemployment rate (ages 15+, %) 4.2 Unemployment rate (ages 25-64, %) 3.7 Part-time workers (ages 15+, %) 25.2 Sources: Israeli CBS, BoI Exchange rate (NIS per USD) 3.6 Exports of goods and services (% of GDP) 29.1 Imports of goods and services (% of GDP) 27.5

8 Israel Factsheet Main trading partners, 2016 Trade volume in billion current US$ Exports of Goods Imports of Goods Source: CBS 8

9 Israel Factsheet 5% 4.3% 4% Gross domestic spending on R&D (2015) % of GDP 3% 2.4% 2% 1% 0% 60% 50% 40% 30% 20% 10% 0% Source: OECD 49.9% Population with higher education % of total, 2016 or latest available data 35%

10 Recent economic trends Local growth rates have moderated, reflected in GDP Mixed trends in exports Labor market reflects full employment Zero bound policy leads to asset prices appreciation

11 Forecasts are continuously revised downwards. Assumption for expansion of world trade includes large safety margin US GDP World Trade %,Growth rates %,Growth rates Gap between current and two years prior forecast Actual data/updated forecast Source: IMF- January 2018 WEO 11

12 Growth rates in recent years are similar to the potential 13% 11% 9% Global Economic Crisis 7% 5% Correction due to large scale car purchases in Q4 The Second Intifada 3.3% 3.9% % 3% 1.1% 1% -1% Source: CBS 12

13 Consumption has led the economic growth in recent years and is expected to contribute to growth in the medium term In 2017, the GDP is 1,262 billion NIS GDP Components: average growth rate for the years % 4.1% 4.0% Public Consumption Investments 23% 21% 4.2% 3.7% 3.3% 3.2% 3.0% 2.0% 2% 1.0% 1.0% Private Consumption 0.0% 55% Source: CBS. The Chief Economist Dept. calculations. 13

14 The output gap is close to zero % 2% 0% -2% -4% - -8% -10% -12% Israel OECD United States 3.0% 2.0% Israel 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% Source: Upper chart OECD, bottom chart - Chief Economist Dept. calculations

15 Structural change in composition of exports: the rise of exports of services Exports of goods and services (Billions ILS) World trade Index (CPB) World trade (RHS) Exports of goods (LHS) As a % exports: As a % exports: % As a % exports: As a % exports: % Exports of services As a % exports: % As a % exports: % 0 Source: CBS, CPB. 0

16 Future growth of services exports depends on further expansion of employment in the high-tech sector Thousands 390 Employees in the high-tech sector 20% 18% 5.0 VC investments in Israel Billions $US 340 High-tech employees (LHS) High-tech employees, 290 as % of business sector employment (RHS) % 12% % 8% *2017- January - November Source: CBS % 2% 0.0 Source: IVC. Local VC Foreign VC

17 The high-tech sector, gas production and the decline in energy prices have contributed to the surplus in the current account 14 14% Current Account Balance In billions of $US and as percentage of GDP 12 12% Billions of $US (LHS) 10 % of GDP (RHS) 10% 8 8% % 2 1.9% 0 0.7% -0.7% % -1.4% -1.5% -2.8% % 4.7% -4.8% -4. * 2017 Three quarters at annual rate Source: CBS. -1.0% 3.9% 3.3% 3.5% 3.4% 2.5% 1.4% % 4% [ ]ערך [ ]ערך 2% 0% -2% -4% - 17

18 Demographic change creates challenge for future growth and productivity Participation Rate Population % change Main labor ages, % 80.7% 64.0% 3.0% % 1.4% 0.4% Total Total population Secular Jewish population Arab minority UltraOrthodox Jews Total Population Ultra-Ortodox Arab minority Jews Work Force Source: CBS, adjusted to immigration. 1

19 Labor market indicators reflect full employment Participation Rate and Unemployment Rate in Israel Age 15 and older 12% 65% [ ]ערך 10% Participation Rate (RHS) 63% 8% 61% Unemployment Rate (LHS) 59% 4.2% 57% 4% Source: CBS.

20 Wages increased significantly since 2014, faster than labor productivity Wages Fixed prices (2011) 9,800 9,600 9,400 9,200 Wage growth between was lower than the growth in labor productivity The increase in wages reflects a high level of employment, correction of previous years and implementation of policy measures (min. wage etc.) 2.8% 2.9% 9,000 8, % 1.1% 0.9% 8,600 Monthly data 8,400 Annual average 8,200 Source: CBS. Minimum wage impact was calculated by the Chief Economist Dept. Average growth rates are based on original data growth is seasonally adjusted and refer to the first eleven months % change in minimum wage % contribution to average wage

21 Fast pace of wage increases was recorded in sectors with low paying jobs, and also in the hi-tech sector Jobs (Thousands) 70 The wage increases in the lowpaying sectors were led by both strength of the labor market and an increase in minimum wages Wages 2017* vs % Wages in the hi-tech sector reflect supply constraint 60 19% 20% 20% % 13% 30 10% 10% 9% 20 9% 8% 8% 10% 9% 10% 10% 8% 10 5% 0-10 Hotel and Management Agriculture Education Restaurant Services Services 0-6,000 Wholesale and Retail 6,000-9,000 * 2017 data based on January November Average Source: CBS. Health, Social Services Construction Transport Real Estate and Postal Services Technical Services 9,000-14,000 Industry Government Financial Services 14,000-18,000 IT 0%

22 The inflation environment remains low and the accommodative monetary policy persists with zero bound interest rates, similarly to many OECD countries 14% Real Interest Rate Nominal Interest Rate Inflation Expectaions 12% 10% 8% 4% 2% 0% -2% Source: Bank of Israel 22

23 Zero bound interest rate environment contributes to appreciation of asset prices 30% Asset prices and real interest rate Jan 2009 = % NASDAQ % % TA % Apartments 140 Sovereign Bonds 70 5% 0% Real interest (RHS) -5% 0 * 2018 January February (except Apartments- until November) Source: CBS, TASE, Chief Economist Department calculations * 23

24 Public and business sectors deleveraging continues, while household debt grows moderately 120% Credit composition as % of GDP 230% 220% 100% 210% 80% 200% 60% 190% 180% 40% 170% 20% 0% Source: BOI, CBS. business sector households housing loans government and municipal authorities 160% 150% Total credit as % of GDP

25 Fiscal Indicators Stabilization in government expenditure Continued decline in Debt/GDP ratio Deficits are still relatively high

26 Reforms reduced the size of the public sector. Since 2009 the share of interest payments and defense expenditure in GDP has leveled 60% General Government Expenditure as % of GDP 50% 50% 50% 50% 9% 40% 9% 8% 49% 48% 49% 49% 48% 4 8% 45% 8% 8% 9% 8% 8% 5% 8% 5% 4% 44% 44% 8% 8% 5% 5% 5% 5% 4% 42% 41% 41% 7% 4% 30% 20% 10% 7% 3% 3% 40% 40% 40% 40% 40% 39% 39% 40% 3% 3% 3% 3% 3% 3% 3% 3% % 34% 35% 35% 35% 33% 33% 31% 31% 31% 31% 31% 31% 30% 31% 32% 31% 31% 31% 32% Civilian expenditure Source: CBS, Chief Economist Dept. calculations. Interest payments Military expenditure 26

27 Government expenditure of GDP in Israel is compatible with OECD countries while civil government expenditure is relatively low Composition of Government expenditure (2015) as % of GDP 60% 50% 60% 57% 55% 55% 54% 52% 50% 50% 49% 45% 44% 44% 43% 43% 42% 40% 39% 37% 37% 40% 11% 30% 50% 40% 34% 32% 30% 5% 20% 7% 10% 20% 10% 11% 0% 0% Social Welfare * 2014, Latest available data Source: OECD Education Defense Health other government expenditure

28 The downward trend of the government debt to GDP ratio continues 105% Public Debt as % of GDP 100% 97.9% 95% 90% 85% 80% 95.9% % 92.9% 91.3% 90.2% 88.2% % 79.5% 80.2% Global Economic Crisis 74.8% 73.1% 72.2% 71.0% 69.0%68.4% 67.0% 66.0% 63.8% 62.4% 61.1% 75% 70% 65% 60% Source: MoF, CBS, The Chief Economist Dept. calculations. 28

29 Central government deficits have been below the ceiling since 2013 Central government budget deficit as % of GDP 7% Central Government 6.0% Ceiling 5.5% 5% 4.7% 4.8% 4% 3.9% 3% 3.5% 3.3% 1% 0% Source: CBS, MOF 2.9% [ ]ערך 2.1% 2.0% 2.7% 2.1% 2.1% 1.7% 2.9% 3.1% 3.0% 2% 3.0% 3.1% 2.0% 1.5% 0.9% 0.0% 29

30 Economic Outlook Continued growth, close to potential Growth of wages and employment, low inflation and cheap credit support consumption

31 Structural and cyclical changes shape the world economy Structural changes in developed countries Geopolitical instability Decline in investments Structural changes in developing countries Slowdown in productivity Slow and fragile recovery Decline in FX reserves Increase of public debt Policy change in U.S. Cyclical changes in developed countries Change in the Chinese growth model Decline of commodity prices Leverage in private sector Cyclical changes in developing countries

32 The slowdown in the growth environment reflects structural changes Higher standards of living Development of the hightech Sector The transition to a developed economy requires more emphasis on increased productivity 32 The high-tech sector grew rapidly until Continued growth is contingent upon supply of skilled labor. Fiscal Needs Demography Increase in social and security challenges led to stability in the share of public spending (compared with declining trend) Declining growth rate of the labor force and increased participation of low skilled workers in the labor market have negative effect on productivity Potential growth is close to 3% in the short-medium term

33 Total government income burden (tax, fees and other revenues) is expected to remain stable Government Income Burden (as % of GDP) *Forecast

34 Learn More Visit the Israel Ministry of Finance website for more information: About the Ministry Economic Overview of Israel Ministry of Finance publications and reports Other publications and reports on the Israeli economy Ministry press releases Follow Us on: 34