The Israeli Economy Stanley Fischer Bank of Israel

The Israeli Economy Stanley Fischer Bank of Israel June 2008

Growth Rate of GDP % * 2008 – BOI Forecast. 2000 -2008*

% Rate of Inflation in Last 12 Months and Inflation Targets, 1992 -2008

Bank of Israel Interest Rate, Inflation Expectations*, and the Fed’s interest Rate, 2004 % -2008 *For 12 months, as derived from the capital market.

Budget Deficit* (percentage of GDP, 2000 -2007) % *Percent of GDP; excluding credit extended. Until 1996, domestic deficit; from 1997, total deficit. *The data from 2000 refer to the deficit excluding the Bank of Israel’s profits.

Public Sector Debt, % Percentage of GDP, 2000 -2007 (year-end)

International Aspects

The Nominal and the Real Exchange Rate 1997 - 2008 NIS Shekel / Dollar Exchange Rate 01/01/1997 -20/06/2008 The Real Exchange Rate by Trading Partners (01/1997 -06/2008 , 01/1997=100) • A rise in the index indicates depreciation. • The figure for June 2008 is calculated from spot exchange rates known for the half-month, our forecast CPI from the monthly model, and an extrapolation of inflation in the countries whose currencies are in the currency basket. • SOURCE: IFS data. For February 2008 to June 2008, Bank of Israel calculations. *The Nis/$ chart is on a daily basis, while the real exchange rate chart is on a monthly basis. 108. 9

Current Account of Balance of Payments as Percentage of GDP, 1995 -2008 (Annual) • SOURCE: Balance of Payments, Central Bureau of Statistics.

Openness of the Israeli Economy % (percentage of GDP, 1995 -2008*) * BOI Forecast *Goods and Services. Source: National accounts, CBS.

Manufacturing Exports by Technology Intensity High-technology Industries: office & computing equipment, electronic components, aircraft, electronic communication equipment, equipment for control & supervision, pharmaceutical products. Medium-high-technology Industries: chemicals & refining petroleum, machinery & equipment, electronic equipments & electrical motors, transport equipment. Medium-low-technology Industries: mining & quarrying, rubber & plastic products, non-metallic mineral products, basic metals, metal products, ships & boats, jewelry & silversmiths’, articles n. e. c. Low-technology Industries: food products, beverages & tobacco, textiles, wearing apparel & leather, paper, printing & wood products. Source: Foreign Trade, CBS.

Investment in Israel by Nonresidents % (as percentage of GDP, 2000 -2007) 8, 798 5, 058 5, 062 7, 251 75 3, 626 723 1, 767 4, 217 14, 694 1, 812 3, 822 270 10, 276 4, 868 2, 012 Investment of Israeli Residents Abroad (as percentage of GDP, 2000 -2007) % 9, 790 8, 244 2, 149 3, 336 1, 623 688 2, 708 982 3, 154 2, 065 SOURCE: Central Bureau of Statistics, Balance of Payments. 2, 381 4, 548 2, 941 14, 992 6, 649 7, 064

Financial Markets and Risk Premium

The Share Markets: Israel, the US and the Emerging Markets, (1/6/2006=100, 1/6/2006 - 20/06/08) EM (EMERGING MARKETS) NASDAQ Israel (Tel Aviv 100)

Israel 5 year Credit Default Swap 6/2003 - 6/2008 63

% Israeli Shahar - US Government 10 Year Spread, 1/2006 - 6/2008

The Hi-Tech Sector

ISRAEL ELECTRONICS & INFORMATION INDUSTRIES 2007 - 20, 700 M$ Medical Systems Civilian Comm. & Telecomm. 22. 9% 8. 8 % Software 23. 7% 13. 4% Components 17. 8% Industrial Equipment 13. 4% Defense Systems

Engineering graduates per year in 2006 • Israel 8000 engineers /year (pop 7. 2 M) 0. 11% • France 30 000 engineers/year, (pop 64 M) 0. 046% • UK 25 000 engineers/year (pop 60 M) 0. 04% • USA 74 000 engineers/ year (pop 300 M) 0. 024% • China 600 000 engineers/year (pop 1. 3 Bn) 0. 0046% • India 400 000 engineers/year (pop 1. 1 Bn) 0. 036% • Japan 90 000 engineers/year (pop 127 M) 0. 07%

Major Multinational Companies with a Design Center in Israel

Thank you