the israeli economy: trends and outlook · pdf fileisrael factsheet sources: israeli cbs, boi...
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3rd quarter of 2017
The Israeli economy:Trends and Outlook
Outline
• Factsheet
• Recent economic trends
• Fiscal indicators
• Economic Outlook
Israel Factsheet
Sources: Israeli CBS, BoI
External AccountLabor Market
Economy Population
Israel Factsheet
Sources: Israeli CBS, BoI
Economy (2016)
317.7GDP, current Billion USD
1,220GDP, current Billion NIS
37,198GDP per capita, current USD
3.3Real GDP growth (latest 5 year average, %)
3.1Average real yearly growth forecast (2017-
2018, %)
External AccountLabor Market
Population
Israel Factsheet
Population (2016)
8.5Total population (Millions)
44Main working ages (%)
7Ultra-Orthodox Jews (ages 25-64, %)
18Arab Minority (ages 25-64, %)
75Jews (excl. Ultra-Orthodox) and others (ages
25-64, %)
1.9Population growth (latest 5 year average, %)
Sources: Israeli CBS, BoI
Economy (2016)
317.7GDP, current Billion USD
1,220GDP, current Billion NIS
37,198GDP per capita, current USD
3.3Real GDP growth (latest 5 year average, %)
3.1Average real yearly growth forecast (2017-
2018, %)
External AccountLabor Market
Israel Factsheet
Population (2016)
8.5Total population (Millions)
44Main working ages (%)
7Ultra-Orthodox Jews (ages 25-64, %)
18Arab Minority (ages 25-64, %)
75Jews (excl. Ultra-Orthodox) and others (ages
25-64, %)
1.9Population growth (latest 5 year average, %)
Sources: Israeli CBS, BoI
Economy (2016)
317.7GDP, current Billion USD
1,220GDP, current Billion NIS
37,198GDP per capita, current USD
3.3Real GDP growth (latest 5 year average, %)
3.1Average real yearly growth forecast (2017-
2018, %)
Labor Market (2016)
64.1Participation rate (ages 15+, %)
79.9Participation rate (ages 25-64, %)
4.8Unemployment rate (ages 15+, %)
4.1Unemployment rate (ages 25-64, %)
26.7Part-time workers (ages 15+, %)
External Account
Israel Factsheet
Population (2016)
8.5Total population (Millions)
44Main working ages (%)
7Ultra-Orthodox Jews (ages 25-64, %)
18Arab Minority (ages 25-64, %)
75Jews (excl. Ultra-Orthodox) and others (ages
25-64, %)
1.9Population growth (latest 5 year average, %)
Sources: Israeli CBS, BoI
Economy (2016)
317.7GDP, current Billion USD
1,220GDP, current Billion NIS
37,198GDP per capita, current USD
3.3Real GDP growth (latest 5 year average, %)
3.1Average real yearly growth forecast (2017-
2018, %)
External Account (2016)
3.84Exchange rate (NIS per USD)
29.8Exports of goods and services (% of GDP)
27.5Imports of goods and services (% of GDP)
Labor Market (2016)
64.1Participation rate (ages 15+, %)
79.9Participation rate (ages 25-64, %)
4.8Unemployment rate (ages 15+, %)
4.1Unemployment rate (ages 25-64, %)
26.7Part-time workers (ages 15+, %)
8Source: CBS
Israel Factsheet
4.4 3.9
3.3
2.5 2.4 2.1
1.3 1.4 1.5 1.5 0.9 0.8
8.1
2.0
3.6
5.8
3.9
1.8
2.7 2.6
1.7
4.3 4.1
1.6
2.4
0
2
4
6
8
10 Exports of Goods
Imports of Goods
18.1
Main trading partners, 2016Trade volume in billion current US$
Israel Factsheet
Source: OECD
49.9%
35%
0%10%20%30%40%50%60% Population with higher education 25-64
% of total, 2016 or latest available data
4.3%
2.4%
0%
1%
2%
3%
4%
5%Gross domestic spending on R&D (2015)
% of GDP
Recent economic trendsLocal growth rates have moderated, reflected in GDP
Mixed trends in exports
Labor market reflects full employment
Zero bound policy leads to asset prices appreciation
Forecasts are continuously revised downwards. Assumption for
expansion of world trade includes large safety margin
2.4
2.9
1.5
2.2
0.6
0.5
1.50.6
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2014 2015 2016 2017
3.8
2.8 2.4
4.2
1.9
2.63.1
0.5
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
2014 2015 2016 2017
Source: IMF- October 2017 WEO 11
World TradeGrowth rates ,%
US GDPGrowth rates ,%
Gap between current and two years
prior forecast
Actual data/updated forecast
0.9%
2.5%
4.1%
-1%
1%
3%
5%
7%
9%
11%
13%
Correction due to large scale car purchases
in Q4
Israel has enjoyed continued growth for the last 15 years
Source: CBS
The Second
Intifada
Global
Economic
Crisis
12
Consumption has led the economic growth in recent years and is expected to contribute to growth in the medium term.
13
* According to the forecast of the chief economist
Source: CBS. The Chief Economist Dept. calculations.
55%
23% 20%
2%
In 2017*, the GDP was 1,257 billion NIS
4.0%4.3%
3.4%
1.0%
2.9%
3.2%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
GDP Components: Average growth rate
for the years 2012-2017*
Public
Consumption Investments
Private
Consumption
Net Exports
The output gap is close to zero
14
Israel OECDUnited
States-14%-12%-10%-8%-6%-4%-2%0%2%4%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: Upper chart – OECD, bottom chart - Chief Economist Dept. calculations
2016
Israel
Exports of services exhibit strength while exports of goods remain weak
15* January –September
Source: CBS, CPB .
Exports of goods
and services
(Billions ILS)
World trade
Index (CPB)
0
10
20
30
40
50
60
70
80
90
0
20
40
60
80
100
120
140
World trade (RHS)
Exports of goods
(LHS)
Exports of services
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
40
90
140
190
240
290
340
390 Employees in the high-tech sector
Future growth of services exports depends on further expansion of
employment in the high-tech sector
16
*2017- January - August
Source: CBS.
High-tech employees,
as % of business sector
employment (RHS)
High-tech employees
(LHS)
**Q1 –Q3 in annual terms
Source: IVC.
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0VC investments in Israel
Billions $US
Local VC Foreign VC
Thousands
The high-tech sector, gas production and the decline in energy prices
have contributed to the surplus in the current account
17
* 2017 - First half at annual rate
Source: CBS.
-4.8%-4.6%
-2.8%
-0.7%-1.4%-1.4%-1.5%
-1.0%
0.7%
1.9%
3.4%
4.7%
3.3%
1.4%
3.9%3.5%
2.5%
0.6%
3.4%3.9%
5.2%
3.8%
2.8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
-6
-4
-2
0
2
4
6
8
10
12
14Current Account Balance
In billions of $US and as percentage of GDPBillions of $US (LHS)
% of GDP (RHS)
Demographic change creates challenge for future growth and productivity
Source: CBS, adjusted to immigration statistics.
1.8%
1.4%
0.4%
3.0%
4.0%
Total SecularJewish
population
Arabminority
Ultra-Orthodox
Jews
Totalpopulation
Work Force
Population % change2015-2019
Participation RateMain labor ages, 2016
80.7%
64%57.6%
Total Population Ultra-Ortodox Jews Arab minority
Labor market indicators reflect full employment
19
* January – September average
Source: CBS.
4.2%
64.0%
57%
59%
61%
63%
65%
4%
6%
8%
10%
12%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*
Participation Rate and Unemployment Rate in IsraelAge 15 and older
Participation Rate
(RHS)
Unemployment Rate
(LHS)
20
Wages increased significantly since 2014, faster than labor productivity
0.9%1.1%
2.9%
2.8%
2.8%
8,200
8,400
8,600
8,800
9,000
9,200
9,400
9,600
9,800
Monthly data
Annual average
The increase in wages reflects a high
level of employment, compensation for
previous years and implementation of
policy measures (min. wage etc.)
Source: CBS. Minimum wage impact was calculated
by the Chief Economist Dept.
2017 growth rate is seasonally adjusted and refer to January - August.
Wage growth
between 2008-2011
was lower than the
growth in labor
productivity
2018201720162015
5.56.13.86.1% change in minimum wage
1.11.20.81.2% contribution to average wage
Wages, fixed prices (2011)
10%
17%
11% 11%
9%
11%
8%
10% 10% 10%
11%
8%
13%
21%
0%
5%
10%
15%
20%
25%
-10
0
10
20
30
40
50
60
70
80
Hotel andrestaurantservices
Managementservices
Agriculture Education Wholesaleand retail
Health,social
services
Construction Transportand postalservices
Real estate Technicalservices
Industry Government Financialservices
IT
0-6,000 6,000-9,000 9,000-14,000 14,000-18,000
Change in the amount of jobs
Percent of wage growth
Fast pace of wage increases was recorded in sectors with
low paying jobs, and also in the hi-tech sector
Wages in the hi-tech sector reflect supply constraint
The wage increases in the low-paying sectors were led by both strength of the labor market and an increase in minimum wages
2017* vs. 2013
21
* 2017 data based on January – August AverageSource: CBS.
The inflation environment remains low and the accommodative monetary policy persists with zero bound interest rates, similarly to many OECD countries
22
-2%
0%
2%
4%
6%
8%
10%
12%
14%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Real Interest Rate Nominal Interest Rate Inflation Expectaions
*
*2017: January-Oectober
Source: Bank of Israel
Zero bound interest rate environment contributes
to appreciation of asset prices
23
• 2017 – January - November (except Real interest – September and Apartments - August)
• Source: CBS, TASE, Chief Economist Department calculations
-5%
0%
5%
10%
60
80
100
120
140
160
180
200
220
240
260Asset prices and real interest rate
For Asset Prices - Jan 2009 = 100
*
TA 125
Apartments
Sovereign
Bonds
Real interest
(RHS)
The low interest rate environment has not reversed public and business
sectors deleveraging, while household debt grows moderately
24Source: BOI, CBS.
150%
160%
170%
180%
190%
200%
210%
220%
230%Total credit
as % of GDP
0%
20%
40%
60%
80%
100%
120% Credit compositionas % of GDP
business sectorhouseholdshousing loansgovernment and municipal authorities
Fiscal IndicatorsStabilization in government expenditure
Continued decline in Debt/GDP ratio
Deficits are still relatively high
Reforms reduced the size of the public sector. Since 2009 the share of
interest payments and defense expenditure in GDP terms have leveled
26Source: CBS, Chief Economist Dept. calculations.
36% 36% 36% 35% 34% 33%35% 35% 35% 32% 31% 31% 31% 31% 31% 30% 30% 31% 31% 31% 31% 31%
6% 6% 6% 6% 5%5%
5% 4% 5%5%
5% 4% 4% 3% 3% 3% 3% 3% 3% 3% 3% 3%
9% 9% 8% 8%8%
8%8% 9% 8%
8%8% 8%
7% 7% 6%6% 6% 6% 6% 6% 6% 6%
50% 50% 50%49%
47%45%
48% 49% 48%
45%44% 43%
42% 41% 41%40% 39% 40% 40% 40% 39% 39%
10%
20%
30%
40%
50%
60%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
General Government Expenditure as % of GDP
Civilian expenditure Interest payments Military expenditure
Government expenditure of GDP in Israel is compatible with OECD countries while civil government expenditure is relatively low
Source: OECD
Composition of Government expenditure (2015) as % of GDP
* 2014, Latest available data
57% 55% 55% 54% 52% 50% 50% 49%45% 44% 44% 43% 43% 42% 40% 39% 37% 37%
34%32%
0%
10%
20%
30%
40%
50%
60%
0%
10%
20%
30%
40%
50%
60%
Social Welfare Education Defense Health other government expenditure
11%
6%
7%
5%
11%
The downward trend of the government debt to GDP ratio continues
28Source: MoF, CBS, The Chief Economist Dept. calculations.
97.9%
95.9%93.9%
95.6%
89.6%
79.5%
83.7%
90.2%
92.9%91.3%
88.2%
80.2%
73.1%72.2%
74.8%
71.0%
69.0%68.4%67.0%
66.0%
63.8%62.4%
60%
65%
70%
75%
80%
85%
90%
95%
100%
105%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Public Debt
as % of GDP
Global
Economic
Crisis
Economic OutlookContinued growth, close to potential
Growth of wages and employment, low inflation and cheap credit
support consumption
Slow and fragile recovery
Structural changes in developed countries
Cyclical changes in developed countries
Structural changes in developing countries
Cyclical changes in developing countries
Slowdown inproductivity
Leveragein private sector
Increase of public debt
Decline in investments
Change in the Chinesegrowth model
Decline of commodity pricesPolicy change in U.S.
Structural and cyclical changes shape the world economy
Decline in FX reserves
Geopolitical instability
The slowdown in the growth environment reflects structural changes
32
DemographyFiscal NeedsDevelopment of the high-tech Sector
Higher standards of
living
Declining growth
rate of the labor
force and
increased
participation of
low skilled
workers in the
labor market have
negative effect on
productivity
Increase in social
and security
challenges led to
stability in the
share of public
spending
(compared with
declining trend)
The high-tech
sector grew
rapidly until
2010. Continued
growth is
contingent upon
supply of skilled
labor.
The transition to a
developed
economy requires
more emphasis on
increased
productivity
Potential growth is close to 3% in the short-medium term
Total government income burden (tax, fees and other revenues)
is expected to remain stable
*Forecast
Government Income Burden(as % of GDP)
27.0 26.6 25.7 24.9 25.0 25.3 26.0 26.023.7
21.8 22.4 22.6 22.0 22.7 23.1 23.1 23.424.8
23.6 23.6 23.7 23.7
4.02.9 5.1
4.6 4.55.1
5.0 4.4
4.3
3.43.2 2.9
2.82.7 2.6 2.7
3.32.2
2.3 2.2 2.0 2.0
31.0
29.5
30.8
29.5 29.530.4
31.030.4
28.0
25.2 25.6 25.524.8
25.4 25.6 25.826.7 27.0
25.9 25.8 25.7 25.7
15
17
19
21
23
25
27
29
31
33
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017* 2018* 2019* 2020* 2021*
Learn More
34
Visit the Israel Ministry of Finance website for
more information:
Economic Overview of Israel
Other publications and reports on the Israeli economy
Ministry of Finance publications and reports
About the Ministry
Ministry press releases
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