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
Israel s politics two days after elections
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% 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: IMF
Central banks are doing whatever is needed to avoid a return to global financial crisis
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
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 1'000 900 800 700 Asia 21% USA 23% 600 500 400 300 Others 25% EU 31% 200 Sources: CBS
12 11 10 9 8 Sound labor market Unemployment rates, quarterly figures 2007-3Q12 (in %) 7 6 5 4 Unemployment Rates (2012) France 10.1% Italy 10.5% Spain 24.9% UK 8.1% Israel Euro US 3 2007/I 2008/I 2009/I 2010/I 2011/I 2012/I Sources: Bloomberg, Bank Hapoalim
Public sector debt: a positive fundamental A decreasing path of public debt % of GDP Public debt comparison % of GDP 160 140 120 46 43 39 33 Domestic Debt Foreign Debt 120 100 US EURO ISRAEL 30 32 32 100 80 30 27 26 26 29 26 25 25 25 25 23 24 21 80 60 109 10410499 97 93 90 18 15 18 17 15 16 84 79 78 75 75 72 65 65 72 74 73 70 64 62 63 62 60 58 60 60 40 20 87 88 89 90 91 92 93 94 95 96 97 98 99 00 ' 01 ' 02 ' 03 ' 04 ' 05 ' 06 ' 07 ' 08 ' 09 ' 10' 11 12 40 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: IMF & Bank Hapoalim forecast
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 80 70 60 50 40 30 20 10 0 70.9 74.9 75.9 60.6 42.5 29.0 2007 2008 2009 2010 2011 10.2012 Source: BOI
120 Israel s stock market prices are again highly correlated with world equity markets Dollar terms, 01/2012=100 115 MSCI WORLD TA 100 110 105 100 95 90 85 80 01.2012 02.2012 03.2012 04.2012 05.2012 06.2012 07.2012 08.2012 09.2012 10.2012 11.2012 12.2012 01.2013 Source: Bloomberg 10
Israel s country risk premium is quite low CDS on 5 year Israel government bonds (issued in USD) 350 300 250 200 150 100 50 0 Sources: Bloomberg
Special Topics Natural gas production Labor force participation Middle class protest Housing prices High tech Overall satisfaction from life in Israel
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.
Israel has a relatively young population 65.0 Old age dependency ratio 55.0 45.0 Old age dependency ratio - the ratio of population above age 65 divided by population at working age of 15-64 years 47.0 53.0 35.0 30.9 35.1 25.0 15.0 12.0 15.2 16.4 16.7 19.4 25.1 25.3 7.7 5.0 India China Korea Israel Ireland US UK Spain Germany Japan Switzerland Sweden Source: Human Development Report 2009 14
Increasing labor force participation Distribution of population by groups, 2009 66% 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 Q4 2010 Q1 Q2 Q3 Q4 2011 Q1 Q2 Q3 Q4 2012 Q1 Q2 Q3
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.
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) 8 7.7 192% 7 6 5 5.1 5.7 6.8 170% 120% 134% 145% 154% 4 3.7 3.7 3 2.9 70% 70% 2 1 20% 0 US Canada Ireland UK New-Zealand Australia Israel -30% Israel US Spain UK Ireland Source: Economist, CBS, Taub Center
Israel s high tech remains a key growth engine Quality of Scientific Research Institutions Rank Country/Economy Value Mean: 3.7 1 Israel 6.3 2 Switzerland 6.3 3 United Kingdom 6.1 4 Sweden 6.0 5 Belgium 5.9 6 Qatar 5.8 7 United States 5.8 8 Netherlands 5.7 9 Canada 5.6 10 Germany 5.6 Brainsway: Deep-TMS Source: World Economic Forum, Global Competitiveness Index, 2011-2012
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? 7 6 5 4 3 2 1 0 Source: OECD, How s life, Measuring well-being
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Appendix: Basic Facts about Israel s Economy Israel s economy grew in Q3 at an annual rate 2011 2012E 2013F of 2.8%, which implies over 3 in 2012. 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