The Israeli Economy: Current Trends, Strength and Challenges Dr. Karnit Flug Governor of the Bank of Israel 30.06.2017 1
GDP per capita Growth Rates 8 GDP per capita annual % change (2000-2018F) 6 4 2 0 Developing Economies Spain Israel Advanced Economies -2-4 -6 *Simple average for 21 rich OECD countries and emerging markets according to IMF deoinition 2 Source : IMF
GDP per Capita, International Comparison $70.000 GDP per Capita (Current US $,PPP adjusted) selected OECD countries, 2015 $60.000 $56.084 $50.000 $40.000 $30.000 $34,054 $34.861 $40.695 $20.000 $10.000 $- 3 Source : IMF
Israel s Goods and Services Exports and World Trade, 1995-2018F Index 2008=100 145 135 125 115 105 95 85 75 65 55 45 35 25 Israeli Exports Forecast *Excl. diamonds and start-ups 4 Source : Bol and IMF
Structural Change in the Composition of Growth Private Consumption is Leading While Exports have a modest contribution % 10 8 6 4 The increase in uses: The total increase and the contribution of uses Public consumption 2007-2016 Private consumption Exports (excl. diamonds ) Investment Total increase in uses 2 0-2 -4 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 5
Labor Market Quarterly, 1995-2017, 25-64 % % 12,5 80.0 11,5 Participation Rate 10,5 77.0 9,5 Employment rate 8,5 7,5 Unemployment rate 6,5 5,5 82 80 78 76 74 72 70 68 4,5 3,5 3.7 66 64 *The data for 2016-Q4 is calculated by the average of October and November 6 Source : Central Bureau of Statistics Labor Force Survey
Unemployment rate, 25-64, 2016 % 25 20 19,6 15 10 5 4,8 0 Iceland Japan Switzerland Korea Czech Republic Germany Mexico Norway Israel United States Hungary United Kingdom New Zealand Australia Netherlands Austria Poland Denmark Luxembourg Chile Estonia Sweden Canada OECD Slovenia Ireland Belgium Finland Latvia Slovak Republic Latvia France Turkey Portugal Spain Greece 7 Source: OECD and BoI
Real Wage per Employee Post* 1995-2017 NIS 10.000 9.500 9.000 Last 12-month percent change 3.3% Business Sector 2.7% Total 2.0%Public Sector 8.500 8.000 7.500 *Seasonally adjusted, 12 months moving average, 2015 prices 8 Source : Central Bureau of Statistics Data
Housing Prices since the GFC 2007-2016 190 Real Housing Prices Index Q1-2007=100 170 150 130 110 90 70 Israel Canada Australia Germany United Kingdom Japan France United States Ireland Spain 50 Q1-2007 Q3-2007 Q1-2008 Q3-2008 Q1-2009 Q3-2009 Q1-2010 Q3-2010 Q1-2011 Q3-2011 Q1-2012 Q3-2012 Q1-2013 Q3-2013 Q1-2014 Q3-2014 Q1-2015 Q3-2015 Q1-2016 9 SOURCE: OECD
Housing Prices the Long Run 1973-2016 index, 2000=100 180 160 140 120 100 80 60 40 20 0 10 Source: BoI & CBS
Bank of Israel Policy
Actual InOlation and InOlation Expectations 2006-2017 % 8 6 4 Expectations Forward* 2 0-2 InXlation 12 month -4 * Forward inolation expectations 3-5 years 12 Source: Bol
Exchange Rates 2012-2017 NIS 5,2 5,0 4,8 4,6 4,4 4,2 / Left axis Index 110 105 100 95 90 4,0 3,8 3,6 3,4 Nominal Effective /$ Left axis 85 80 75 3,2 01/12 03/12 05/12 07/12 09/12 11/12 01/13 03/13 05/13 07/13 09/13 11/13 01/14 03/14 05/14 07/14 09/14 11/14 01/15 03/15 05/15 07/15 09/15 11/15 01/16 03/16 05/16 07/16 09/16 11/16 01/17 03/17 05/17 70 13 Source : BoI
Bank of Israel Policy Tools 2007-2017 Interest Rate (%) 5 4 3 2 1 0 01/07 06/07 11/07 04/08 09/08 02/09 07/09 Bond Purchases 18 Billion NIS 12/09 05/10 10/10 03/11 08/11 01/12 06/12 11/12 04/13 09/13 02/14 07/14 The Monetary Committee assesses that monetary policy will remain accommodative as long as needed for the inxlation return to it s target 12/14 05/15 10/15 03/16 08/16 0,1 01/17 06/17 FX Intervention (US$) 3.000 2.500 2.000 1.500 1.000 500 0 Building reserves Intervention Natural Gas Purchase program + Intervention 01/17 08/16 03/16 10/15 05/15 12/14 07/14 02/14 09/13 04/13 11/12 06/12 01/12 08/11 03/11 10/10 05/10 12/09 07/09 02/09 09/08 04/08 11/07 06/07 01/07 Macroprudentia l Measures 11/36 07/09 02/82 10/54 05/27 01/00 Additional provision for high LTV loans Higher capital requirem ents for high LTV Variable Interest Rate limit LTV limit Higher capital requirements for high LTV PTI limit and capital require ment Higher capital requirements 03/16 10/15 05/15 12/14 07/14 02/14 09/13 04/13 11/12 06/12 01/12 08/11 03/11 10/10 05/10 12/09 07/09 02/09 09/08 04/08 11/07 06/07 01/07 14 Source : Bol
The Strengths Behind Israel s High Tech Sector
Israel is Leading in International Innovation Rankings Index Ranking 10 2 Factors in Israel that encourage innovation ü Quality universities that provide the economy with human capital, scientioic aptitude, and technological abilities ü Collaboration between the universities and industry ü Government support for commercial R&D ü Developed venture capital industry 16 Source: World Economic Forum 2016-2017 & Bloomberg Innovation Report 2017
Venture Capital Investment as % of GDP, 2015 45% 40% 35% 30% 25% 20% 15% 10% 5% 17 0% Israel United States Canada South Africa Korea Finland Switzerland Sweden Ireland United Kingdom Austria Portugal France Denmark Germany New Zealand Japan Netherlands Australia Hungary Estonia Norway Belgium Spain Slovak Republic Luxembourg Poland Seed/start-up/early stage Later stage venture Source : OECD Russian Federaaon Slovenia Italy
Share of the Population Aged 25-64 with Tertiary-Level Education, 2015 % 60 50 40 30 20 10 0 18 Source : OECD Education at a Glance 2015
Israel s Innovation Map 413 Fintech & ecommerce 255 Agro & Food Tech 177 Pharmaceuticals 144 אלקטרוניק ה 4,983 Start-Ups 300 Mobile & Telecom Tech 430 Software Applications 433 Security & Safety Tech 279 Cleantech 746 Digital Health & Medical Technologies 19 Source: Startup Nation Central
Employees In High-Tech, International Comparison % 9 Employees aged +15 in the high-tech field, Percentage of total, 2014 8 7 6 5 4 3 2 1 0 20 Source: CBS and EuroStat
Yet, There are Challenges Ahead
Output Per Hour Worked 1995-2016,$ PPP, 2015 Constant Prices $ 70,00 65,00 60,00 55,00 USA 21 Rich Countries 50,00 45,00 40,00 35,00 Israel 30,00 25,00 20,00 22 Source : The Conference Board Total Economy Database 2016
The Productivity Gap Occurs due to Several Reasons 92 Total score (0-100) in 2017 Doing Business index Israel s score 87 82 77 72 67 $ 600.000 500.000 400.000 300.000 Capital per worker in the business sector 2014, in 2011 prices, $PPP 300 295 290 285 280 200.000 275 100.000 270 0 265 Mexico Poland Chile Turkey New Zealand Israel Slovakia Estonia Hungary Japan Canada Iceland Australia Czech Republic OECD Slovenia United States Germany Sweden Switzerland United Kingdom Latvia Denmark Finland Netherlands Austria Luxembourg France Portugal Belgium Norway Spain Greece Ireland Italy New Zealand Denmark Korea Norway United Kingdom United States Sweden Estonia Finland Latvia Australia Germany Ireland Austria Iceland Canada Poland Portugal Czech Republic Netherlands France Slovenia Switzerland Spain Slovak Republic Japan Hungary Belgium Mexico Italy Israel Chile Luxembourg Greece Turkey Problems-solving in digital environment skills according to PIAAC survey Aged 15+, 2015 23 Source: BoI, RAMA, Doing Business
Indicators for Quality and Gaps in Human Capital 60% 40% 20% 0% The likelihood of students in the bottom quarter of socio-economic distribution scoring in the top quarter of the science performance distribution, 2015 29% 16% Finland Korea Spain Canada Portugal United Kingdom Latvia Slovenia Poland Germany Australia United Stats Netherlands New-Zealand Ireland OECD Switzerland Denmark Belgium France Italy Norway Austria Russia Cezch Republic Swden Lituania Turkey Luxemburg Hungary Greece Slovak Republic Iceland Israel Chile Mexico 550 500 450 400 350 300 Israel s students performance in reading, mathematics & science, PISA 2015 490 493 493 470 479 467 Mathematics Reading 39 Science 37 40 OECD Score among 70 countries 600 500 400 Performance differences between Hebrew & Arabic students in PISA- mathematics, 2015 Mathematics Reading Science 495 391 300 Hebrew דוברי דוברי Arabic Speaking ערביתעברית Speaking 507 391 488 401 Hebrew דוברי Arabicדוברי Hebrewדוברי Speaking Speaking Speaking ערביתעברית ערביתעברית Arabic Speaking 360 310 260 210 160 110 Performance differences between students in PISA- mathematics, 2015 Israel Korea Belgium Slovak Republic Switzerland Portugal Ausria France Hungary Australia Italy Iceland Luxemburg New Zealand United Cezch Republic Netherlands Sweden OECD Germany Greece Japan United States Canada Slovenia Poland Lituania Spain Chile Norway Finland Turkey Estonia Denmark Ireland Latvia Mexico 24 Source: OECD, RAMA
Economic Income Inequality is high 0,6 Gini Index, 2014, at disposable income, post taxes and transfers Israel 2015 0,5 0,4 0,3 0,2 0,1 0 Iceland Norway Denmark Slovenia Finland Cezch Republic Belgium Slovak Republic Austria Luxemburg Sweden Nethelands Hungary Germany France Switzerland Poland Korea Ireland OECD Canada Italy Japan New Zealand Australia Portugal Greece Spain Latvia Unitred Kingdom Estonia Israel Turkey United States Mexico Chile *Israel data for 2014 25 Source : Based on Central Bureau of Statistics Data and OECD
Israel & Spain
Trade Relations Israel & Spain Exports & Imports of goods, 2016 Imports from Spain $1,577.3 Million Exports to Spain $896.1 Million 25% Motor Vehicles and Transport Equipment 16% Texales and Texale Aracles 10% Chemicals 7% Base Metals 15% Electrical Equipment and Machinery 33% Chemicals 31% Electrical Equipment and Machinery 4% Medical Instruments 6% Vegetable Products 5% Plastic Products 6% Articles of Stones 16% Others 9% Plastic Products 17% Others 27 Source: CBS
Trade Relations Israel & Spain Exports & Imports of Business Services, 2015 Imports from Spain $53 Million Exports to Spain $42 Million 32% 5% Research & R&D Development 31% Charges for the use of intellectual property 37% Advertising, Market Research, and Public Opinion Polling 5% Telecommunications 3%,Computer services 6% Accounting 6% 8% 8% Others Adverasing Food 5% Computer services 18% Services between Related Enterprises 50% Others 28 Source: CBS
To Sum Up The Israeli Economy has a great potential, but while part of the economy utilizes its strengths and resources, inclusive growth of the economy as a whole requires a comprehensive and persistent policy. The main pillars of such policy should address economic inequality, inefoicient regulation and the need to increase both investment and human capital. 29
Gracias!