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1. STATE OF ISRAEL MINISTRY OF FINANCE International Affairs Department ECONOMIC HIGHLIGHTS July 2011, 2 nd Quarter 2011 Click to start

3. Economic Figures GDP and Business GDP Major GDP Components Growth: Israel compared to the World Exports of Goods and Services Foreign Investments Unemployment & Participation Rates Inflation Rate Growth of Main GDP Components 2008 Main Economic Indicators Main Trading Partners Inflation Rate Worldwide BACK TO CONTENTS

4. Main Economic Indicators *Current Prices, using a public exchange rate of 1$ = 3 . 46 NIS ** Estimated Source: Ministry of Finance, IMF CONTINUE 2011 Q1 2010 Q4 2010 Q3 2010 Q2 2010 2009 Criteria 55.1 54.5 53.5 52.9 213.1 203.6 GDP (current prices in $B)* 4.7% 7.6 % 4.8 % 5.5 % 4.7% 0.8% Real GDP Growth Rate (%) -- -- -- -- 29 ,531$ 28,581$ GDP per Capita (PPP adjusted)* 2.7% 5.4% 2.8% 3.7% 2.8% -1.1% GDP per Capita Growth Rate (%, 2005 prices) 24.6 (44.6%) 23.7 (43.5%) 23.1 (43.1%) 23.0 (43.5%) 91.3 (42.9%) 80.4 (39.5%) Exports (Goods & Services) $B* ( As Percentage of GDP ) 22.9 (41.5%) 21.1 (40.5%) 21.3 (39.7%) 21.3 (40.2%) 85.6 (40.1%) 76.0 (37.3%) Imports (Goods & Services) $B* ( As Percentage of GDP ) 6.0% 6.5% 6.5% 6.5% 6.6% 7.6% Unemployment Rate (%)

5. Main Economic Indicators Source: Ministry of Finance CONTINUE 2010 2009 2008 2007 Criteria 76. 4 % 79. 3 % 77. 1 % 7 7.8 % Total Gross Debt (% of GDP) 42.7% 43.0% 43.0% 43.6% Government Expenditure (Percentage of GDP) 2.9% 3.6% 0.8% 2.9% Current Account Surplus (% of GDP) 2.7% 3.3% 4.6% 0.5% Inflation Rate (CPI, yearly average)

6. Main Economic Indicators Source: Ministry of Finance CONTINUE All 3 rating firms have reaffirmed Israel’s rating, without any downgrade, Since the global economic crisis in 2009. Overseas Bonds Forecast Domestic Bonds Term Rating Firm Rating Rating A1 Stable A1 Long Moody's P1 - Short A Stable AA- Long Standard & Poor's A-1 A-1+ Short A Stable A+ Long Fitch F1 - Short

7. GDP and Business GDP Annual rate of change, constant prices In 2010, Israel has recovered from the global In the 4 th quarter of 2010, Israel economic crisis, and is back to previous years’ experienced exceptional growth rates growth rates Source: Ministry of Finance. CONTINUE

8. GDP Growth Israel compared to advanced economies* (annual rate of change, constant prices) Source: Ministry of Finance, IMF Since 2004, Israel’s growth rate has exceeded the average growth rate of advanced economies. CONTINUE In 2009, as most of the world experienced a decline in GDP, Israel experienced a 0.8% growth in it’s GDP

9. Major GDP Components Annual rate of change, in constant prices Source: Ministry of Finance CONTINUE In 2010, Investment in Fixed Assets and Export of Goods and Services recovered sharply, after they were contracted severely in 2009 due to the economic crisis. Global Economic Crisis

10. Exports of Goods and Services US $ Billions, current prices Source: Ministry of Finance CONTINUE Global Economic Crisis

11. Israel’s Main Trading Partners 2010, US $ Billions Source: Central Bureau of Statistics Exports CONTINUE * Since July 1997 the data on trade with Hong-Kong is added to the data on China Imports

12. Israel’s Main Trading Partners US $ Billions Source: Central Bureau of Statistics CONTINUE Imports Exports Europe Asia North America

13. Net Foreign Investments in Israel US $ Billion * 2006 is exceptional due to a large acquisition by Teva Pharmaceutical Industries Ltd Source: Ministry of Finance CONTINUE Global Economic Crisis

14. Unemployment and Participation As % of total labor force Source: Ministry of Finance CONTINUE Since the 2 nd quarter of 2009 unemployment is decreasing , hand in hand with an increase in participation rate since the 1 st quarter of 2010.

15. Inflation Rate Rate of change in CPI, yearly average, 2008=100 Source: Central Bureau of Statistics, Ministry of Finance CONTINUE

16. Inflation Rate Rate of change in CPI, 12 months average, 2008=100 Source: Central Bureau of Statistics, Ministry of Finance CONTINUE

17. Inflation Rate Worldwide Annual rate of change in CPI Sources: Ministry of Finance, IMF CONTINUE The Israeli economy demonstrated a high level of stability compared to other countries throughout the global economic crisis

18. Growth of Main GDP Components for Previous Quarter Source: Ministry of Finance NEXT CHAPTER: BALANCES BACK TO CONTENTS Q1 2011 Criteria + 4. 7 % Real GDP + 5.8% Business GDP + 16.0% Exports + 6.8% Private Consumption + -5.7% Public Consumption + 23.7 % Investment in Fixed Assets

19. Balances Budget Deficit – Target and Execution Gross Public Debt BACK TO CONTENTS Budget Deficit and General Government Expenditure Gross Tax Burden Current Account and Net Foreign Debt

20. Gross Public Debt As % of GDP Source: Ministry of Finance Since 2003, gross public debt has been on a consistent downward trend , only interrupted by the extraordinary circumstances surrounding the 2009 global economic crisis CONTINUE Global Economic Crisis

21. Budget Deficit – Target and Execution in NIS million, current prices Source: Ministry of Finance CONTINUE For the first time in its history, Israel enacted a biennial budget for the years 2009-2010 In both years, Israel came in under budget target. Quarterly Budget Execution Yearly Budget Execution Yearly Budget Target

22. Budget Deficit and General Government Expenditure Source: Ministry of Finance General Government Expenditure (% of GDP) CONTINUE Budget Deficit (% of GDP)

23. Current Account Balance and Net Foreign Debt Source: Ministry of Finance. Since 2003, the current account balance is positive, and is accompanied by a decrease of net foreign debt Current Account Surplus (% of GDP) Net Foreign Surplus* (% of GDP) CONTINUE *Current Prices, using a public exchange rate of 1$ = 3.46 NIS

24. Gross Tax Burden as % of GDP Source: Ministry of Finance, OECD OECD countries average: 34.8% (2008 average) NEXT CHAPTER: INTERNATIONAL COMPARISONS BACK TO CONTENTS

25. International Comparisons NASDAQ and Tel-Aviv 100 (monthly average) WEF Global Competitive Index Central Bank Interest Rates: Israel and U.S.A BACK TO CONTENTS IMD World Competitiveness Yearbook

26. Source: International Institute for Management and Development (IMD), World Competitiveness Yearbook 2011 IMD World Competitiveness Yearbook 2011 The Institute for Management Development ranked Israel 17 th out of 59 countries for 2011 (Israel was also ranked 17 th in 2010) CONTINUE

27. Source: International Institute for Management and Development (IMD), World Competitiveness Yearbook 20 11 IMD World Competitiveness Yearbook 2011 CONTINUE Information Technology Skills Central Bank policy Entrepreneurship Flexible and adaptability

28. Source: International Institute for Management and Development (IMD), World Competitiveness Yearbook 20 11 IMD World Competitiveness Yearbook 2011 CONTINUE Total expenditure on R&D (as % of GDP) Scientific Research Innovative capacity Venture Capital

29. Source: World Economic Forum, Global Competitiveness Index, 2010-2011 The World Economic Forum ranked Israel 24 th out of 139 countries for 2010-2011 CONTINUE WEF Global Competitiveness Index 2010-2011

30. Source: World Economic Forum, Global Competitiveness Index, 2010-2011 CONTINUE WEF Global Competitiveness Index 2010-2011 Quality of scientific research institutions Utility patents per million population Availability of latest technologies Strength of investor protection

31. Source: World Economic Forum, Global Competitiveness Index, 2010-2011 CONTINUE WEF Global Competitiveness Index 2009-2010 Legal rights index Capacity for innovation Firm-level technology absorption Nature of competitive advantage

32. Central Bank Interest Rates: Israel and U.S.A Source: Bank of Israel (BOI), Federal Reserve Bank of Israel Rate (BOI) U.S. Federal Funds Rate (FED) = 0% CONTINUE The Bank of Israel was the first in the western world to raise interest since the outburst of the economic crisis. The rate was raised gradually from 0.5% to 3.25%

33. NASDAQ & Tel Aviv 100 monthly average Source: Ministry of Finance Tel Aviv 100 corresponds with the NASDAQ to current events NEXT CHAPTER: ISRAEL AND THE OECD BACK TO CONTENTS

34. Israel and the OECD Unemployment GDP per Capita Real GDP Growth Expenditure on R&D Israel was invited as a full member in the OECD on May 10 th , 2010, and officially joined in September 10 th , 2010. BACK TO CONTENTS

35. Source: OECD CONTINUE Israel is ranked 1 st of all OECD countries by expenditure on R&D (research & development) as a percentage of GDP (4.27 %), demonstrating innovation , development and creativity . Expenditure on R&D As % of GDP, 2008, or latest available year

36. Real GDP Growth 3-year average at end of period Source: OECD CONTINUE Israel’s 3-year average growth rate is higher then most OECD members. For Israel’s year-on-year graph, see slide no.7

37. GDP per capita Current prices and PPP’s, 2009 Source: OECD CONTINUE For Israel’s adjusted PPP GDP Per Capita, see slide no.4 Although no comparable data for 2010 exists, it is reasonable to assume a diminishing gap between Israel and the OECD average

38. Unemployment Rate Average 2006-2008, or latest available period Source: Ministry of Finance, OECD Israel’s unemployment rate is in an ongoing downtrend, reaching an historic low level of 5.8% in April 2011. During the last global economic crisis, Israel experienced a relatively mild increase in unemployment rates. For Israel’s unemployment, see NEXT CHAPTER: INTERNATIONAL AGREEMENTS BACK TO CONTENTS slide no.14

39. International Agreements Avoidance of Double Taxation Agreements Bilateral Investment Treaties Cooperation in Industrial R&D Agreements International Organization Memberships Israel’s Free Trade Agreements BACK TO CONTENTS

40. Israel’s Free Trade Agreements QIZ Agreements Egypt (2004) Jordan (1998) 1985 1992 1997 1997 1999 2000 2007 USA EFTA Turkey Canada Mexico European Union (Association Agreement) MERCOSUR (Argentina not yet in force) CONTINUE Source: Ministry of Finance

41. Avoidance of Double Taxation Agreements CONTINUE Source: Ministry of Finance Austria Belarus Belgium Brazil Bulgaria Canada China Czech Republic Croatia Denmark Estonia Ethiopia Finland France Germany Greece Hungary India Ireland Italy Jamaica Japan Latvia Lithuania

42. Avoidance of Double Taxation Agreements CONTINUE Source: Ministry of Finance Luxembourg Mexico Moldova Norway Philippines Portugal Poland Romania Russia Singapore Slovakia Slovenia South Africa South Korea Spain Sweden Switzerland Thailand Netherlands Turkey Ukraine United kingdom Uzbekistan U.S.A Taiwan Vietnam

43. Cooperation in Industrial R&D Agreements CONTINUE Source: Ministry of Finance Austria Belgium Canada China Finland France Germany Hong Kong Sweden United kingdom U.S.A India Ireland Italy Korea Netherlands Portugal Singapore Spain Victoria (Australia) Czech Republic

44. Bilateral Investment Treaties CONTINUE Source: Ministry of Finance * See comments in the Bilateral Investments Treaties page in our website Albania Argentina Armenia Azerbaijan Belarus Bulgaria China Croatia* India Kazakhstan Latvia Lithuania Germany Cyprus Czech Republic El Salvador Estonia Georgia Guatemala Ethiopia Hungary* Macedonia* Korea Moldova

45. Bilateral Investment Treaties CONTINUE Source: Ministry of Finance South Africa* Thailand Turkey Turkmenistan Ukraine* Uzbekistan Slovakia Slovenia* Serbia Mongolia Poland Romania* Montenegro Peru* Vietnam* * See comments in the Bilateral Investments Treaties page in our website

47. Relevant Sites BACK TO CONTENTS Ministry of Finance Bank of Israel Central Bureau of Statistics Israeli Government Portal Israel Securities Authority Ministry of Industry, Trade and Labor CONTACT US Ministry of Foreign Affairs

48. WE WELCOME YOUR FEEDBACK Mr. Roni Hershkovitz Director Overseas Economic Information International Affairs Department Ministry of Finance Jerusalem Israel Mr. Assaf Luxembourg Overseas Economic Information International Affairs Department Ministry of Finance Jerusalem Israel START OVER Follow us on Twitter Subscribe to our RSS Feeds Subscribe to our Newsletters Write us an Email Visit our Website Follow us on Linkedin