The Israeli Economy 2009 The Caesarea Center Conference Provost, Interdisciplinary Center (IDC) Herzliya
The Big Issues The broken crystal ball A crisis that happens once in 100 years From a country oriented economy to a world global economy A need for a new architectural structure of the financial markets and Institutions
Identifying Business Cycles Turning Points in the Israeli Economy The Present Cyclical Position
The Melnick State of the Economy Index Main Indicators Industrial Production Revenue in Commerce and Services Import Index Employee Posts in the Business Sector
140 130 120 110 100 90 80 70 Industrial Production 1995-2008 (2004 = 100) Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09
Revenue in Commerce and Services 140 1995-2008 (2004 = 100) 130 120 110 100 90 80 70 60 Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09
210 200 190 180 170 160 150 140 130 120 110 100 Import Index 1995-2008 (1994 = 100) Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09
2,100.00 Employee Posts in the Business Sector 1995-2008 2,000.00 1,900.00 1,800.00 1,700.00 1,600.00 1,500.00 1,400.00 1,300.00 Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09
The Melnick Index 1994-2008 (2004 = 100) 130 120 The Present Cycle May 2008 110 The big crisis October 2000 100 The contraction recession March 1996 90 The high-tech bubble May 1999 80 Growth and Recovery August 2003 70 Jan-94 Jul-94 Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09
Long Term Fundamentals
20 15 10 5 0-5 GDP per Capita in Israel (Rates of Growth, Percent) 1973 1985 1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010
Recent Economic Policy
General Government Expenditure 2000-2008 (Percent of GDP) 55 50 45 40 35 30 2000 2001 2002 2003 2004 2005 2006 2007 2008*
General Government Deficit 2000-2008 (Percent of GDP) 8 7 6 5 4 3 2 1 0 2000 2001 2002 2003 2004 2005 2006 2007 2008*
Public Debt 2000-2008 (Percent of GDP, Gross Debt) 105 100 95 90 85 80 75 70 65 60 2000 2001 2002 2003 2004 2005 2006 2007 2008*
Bank of Israel Interest Rate 2000-2008 (Nominal and Real - Percent) 12 10 8 6 4 2 0 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Nominal Real
International Reserves 2008 (In US dollars, millions end of the period) 40,000 38,000 36,000 34,000 32,000 30,000 28,000 26,000 24,000 22,000 20,000 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08
8 7 6 5 4 3 2 The Dollar and Basket Exchange Rate 1993-2008 Jul-93 Jan-94 Jul-94 Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Lower limit Upper Limit Basket Dollar
Latest Economic Developments
GDP and Business GDP 2000-2008 (Rates of Growth, Percent) 12 10 8 6 4 2 0-2 2000 2001 2002 2003 2004 2005 2006 2007 2008-4 GDP GDP Business
Rate of Inflation 2000-2008 (CPI, Percent) 7 6 5 4 3 2 1 0-1 -2-3 2000 2001 2002 2003 2004 2005 2006 2007 2008*
Unemployment 2000-2008 (Percent) 11 10 9 8 7 6 5 2000 2001 2002 2003 2004 2005 2006 2007 2008*
Labor Force Participation 2000-2008 (Percent) 58 57 56 55 54 53 52 2000 2001 2002 2003 2004 2005 2006 2007 2008*
Current Account 2000-2008 (Percent of GDP) 6 5 4 3 2 1 0-1 2000 2001 2002 2003 2004 2005 2006 2007 2008* -2
Foreign Investment 2000-2008 (Billion U.S. dollars) 18 16 14 12 10 8 6 4 2 0 2000 2001 2002 2003 2004 2005 2006 2007 2008* Inflow Outflow -------- Direct Inflow Direct Outflow
Consumer Price Index 2000-2008 (Percent change in previous 12 months) Jan-00 Apr-00 Jul-00 Oct-00 Jan-01 Apr-01 Jul-01 Oct-01 Jan-02 Apr-02 Jul-02 Oct-02 Jan-03 Apr-03 Jul-03 Oct-03 Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 7 6 5 4 3 2 1 0-1 -2-3
The World Economy Basic Assumptions
Source: IMF WEO Update November 2008
תחזיות ה- IMF לפעילות עולמית ב- 2009 8 6 4 2 0-2 סחר עולמי תוצר עולמי ארה"ב גוש האירו שווקים מתעוררים ומתפתחים נוב- 08 אוק- 08 יול- 08 אפר- 08 מקור: World Economic Outlook
World Trade Volume 2003-2009 (Annual Percent Change, IMF WEO October 2008) 12 11 10 9 8 7 6 5 4 3 2 1 0 4.6 2.1 2003 2004 2005 2006 2007 2008* 2009* *Forecast
Real GDP Growth 2003-2009 (Annual Percent Change, IMF WEO October 2008) 4 3 2 1.6 1.3 1 0-1 0.7 2003 2004 2005 2006 2007 2008* 2009* -0.2-0.7-0.5 USA Japan Euro Area *Forecast
Real GDP Growth 2003-2009 (Annual Percent Change, IMF WEO October 2008) 14 12 10 8 6 4 2 0 9.7 7.8 8.5 6.3 2003 2004 2005 2006 2007* 2008* 2009* China India *Forecast
Inflation 2003-2009 (CPI, Annual Percent Change, IMF WEO October 2008) 5 4 4.2 3.5 3 2 1 1.6 1.8 0.9 1.9 0-1 2003 2004 2005 2006 2007 2008* 2009* USA Japan Euro Area *Forecast
Inflation 2003-2009 (CPI, Annual Percent Change, IMF WEO October 2008) 9 8 7 6 5 4 3 2 1 0 7.9 6.4 6.7 4.3 2003 2004 2005 2006 2007 2008* 2009* China India *Forecast
Economic Policy Fiscal The 2009 Budget Monetary
Budget 2009 The budget will not be approved on time during the first quarter of 2009 expenditure will be 1/12 of 2008s budget The next government change the budget an I assume that government consumption and investment will increase by 2 percent in real terms Expected deficit 3.0 percent of GDP due to drop in tax collection Continuation of tax reduction al planned
Monetary Policy Monetary Policy will continue to be expansionary The Bank of Israel will set the lowest possible interest rate The Bank of Israel will support the financial system and the banking system acting on time as Lender of Last Resort The Bank of Israel will continue to support the Shekel
Consumer Price Index and Dollar Exchange Rate 2000-2008 (Percent change in previous 12 months) Jan-00 Apr-00 Jul-00 Oct-00 Jan-01 Apr-01 Jul-01 Oct-01 Jan-02 Apr-02 Jul-02 Oct-02 Jan-03 Apr-03 Jul-03 Oct-03 Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 21 18 15 12 9 6 3 0-3 -6-9 -12-15 -18-21 CPI Lower limit Upper limit Dollar
8 7 6 5 4 3 2 The Dollar and Euro Exchange Rate 1993-2008 Jul-93 Jan-94 Jul-94 Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Lower limit Upper Limit Euro Dollar
Macroeconomic Forecast 2008
GDP and GDPB Forecast 2009 (Rates of Growth, Percent) 12 10 8 6 4 2 0-2 0.7 1.0 2000 2001 2002 2003 2004 2005 2006 2007 2008* 2009* -4 GDP GDP Business
Rate of Inflation Forecast 2009 (CPI, Percent) 7 6 5 4 3 2 1 0-1 -2-3 2000 2001 2002 2003 2004 2005 2006 2007 2008* 2009* 1.7
Unemployment Forecast 2009 (Percent) 11 10 9 8 7 7.0 6 5 2000 2001 2002 2003 2004 2005 2006 2007 2008* 2009*
Labor Force Participation Forecast 2009 (Percent) 58 57 56.4 56 55 54 53 52 2000 2001 2002 2003 2004 2005 2006 2007 2008* 2009*
Current Account Forecast 2009 (Percent of GDP) 6 5 4 3 2 1 0-1 2000 2001 2002 2003 2004 2005 2006 2007 2008* 2009* 1.0-2
Uses and Resources Forecast 2009 (Rates of Growth, Percent) Resources GDP Business GDP Imports Uses of Resources Private Consumption Government Consumption Gross Capital Formation o.w.: Fixed Capital Formation Exports C.B.S 2008 4.5 5.2 4.2 4.4 2.3 4.5 5.3 5.8 B.o.I. 2009 1.5 1.8 0.7 2.5-1.0-0.5 1.5 1.2 Melnick 2009 0.7 1.0 2.5 2.5 2.0-5.0-4.0 2.0
Bank of Israel Interest Rate 2000-2009 12 10 8 6 4 2 0 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09
Consumer Price Index and Dollar Exchange Rate 2009 Forecast (Percent change in previous 12 months) 18 15 12 CPI inflation in 2009 1.7 percent Dollar exchange rate 3.92 at December 2009 9 6 3 0-3 -6 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10-9 -12-15 -18-21 CPI CPI forecast Lower limit Upper limit Dollar Dollar forecast
BoI Interest Rate and Yields to Makam and Shahar 2009 Forecast 8 7 6 5 4 3 2 1 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 BoI Rate BoI Rate forecast Makam 12 months Makam forecast Shahr 10 Years Shahar forecast
Real Yield on Indexed Government Bonds 2009 Forecast (5 and 10 years maturity, percent) 7 6 5 4 3 2 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 5 year 5 year forecast 10 year 10 year forecast