Monday, December 26, 2011

The Israeli Economy - Summary of 2011

The following article summarizes key events and developments over the last year in the Ministry of Finance and the Israeli economy.

(Communicated by the Ministry of Finance)

The Israeli Economy - Summary of 2011

The Israeli economy continued to withstand the global economic crisis in 2011, which turned out to be an important year for the Israeli economy also due to key socio-economic issues receiving more attention.

The following article summarizes key events and developments over the last year in the Ministry of Finance and the Israeli economy, with links to further information in articles posted over the last year by the International Affairs Department in the ministry. The Israeli economy maintains growth

The Israeli economy continued to withstand the global economic crisis in 2011, while maintaining growth: Israel's GDP per-capita is forecasted to grow by 3% in 2011. Also, Israel managed to decrease its unemployment to an historic low level, standing at only 5.5% in the 2nd quarter of 2011, and 5.6% in the 3rd quarter of 2011.

Inflation in the last 12 months (Nov. 2011 compared to Nov. 2010) stands at 2.6%, within the target bandwidth of the Bank of Israel (1%-3%). Average monthly Consumer Price Index (where 2010=100) grew from 101.4 in Nov. 2010 to 104.1 in Oct. 2011. The Bank of Israel Interest rate grew gradually from 2% in Jan. 2011 to 3.25% in June. In between June to September, Bank of Israel interest rate was stagnant, and then was gradually decreased to 2.75% in Dec. 2011.

Both imports and exports knew a recovery in the 1st half of 2011, with a decline in the 3rd quarter. Exports of goods and services are forecasted to grow by 3.8% in 2011, and imports of goods and services are forecasted to grow by 9.2% in 2011.

For more extensive information, see:

· Economic Overview of Israel

· Economic Highlights

Israel's rank in leading economic indicators

· Israel's rank in the World Economic Forum Global Competitiveness Report rose from 24th to 22nd.

· Israel's rank in the IMD Global Competitiveness Yearbook was kept at 17th.

The Sheshinski Committee submitted its final conclusions

Final conclusions by the Committee to Examine the Policy on Oil and Gas Resources in Israel, headed by Prof. Eytan Sheshinski were released on January 3, 2011. The Committee recommended several fiscal changes due to major developments and findings of natural gas in Israel.

The outcome of these fiscal changes will ensure that the cash flow of the projects during the debt repayment period will not be impaired, which will safeguard the ability to finance the ventures. That, by reducing the maximum tax rate of the state’s share in the profits, which keeps it on par with the accepted rate of taxes in most countries in which these operations are conducted.

Barclays to establish R&D center in Israel to support their global operations

Barclays Capital investment bank began operating in Israel in 2008, and in March, Barclays announced plans to open a technology research and development (R&D) center in Israel, to be called the Israel Development and Engineering Center (IDEC).

The decision to establish the center was made by the Barclays Group's management following the unveiling of the government's Competitive Advantage program to promote high-tech industries in Israel, which was formulated by the Ministry of Finance and the Ministry of Industry, Trade and Labor.

Following Barclay's, the American Citigroup bank also intends to open a technology R&D center in Israel to support its global activities.

Social protests over the cost of living sweep Israel

After several demonstrations over prices of specific products in Israel, such as fuel and cottage cheese, a protest over housing prices in July evolved into a cross-nation general protest over the cost of living, including basic grocery consumption products, housing, the price of raising children, and more.

On August 7, Prime Minister Benjamin Netanyahu appointed a professional committee for socio-economic change, chaired by Prof. Manuel Trajtenberg, in order to hold a broad dialogue with different groups and sectors within the public, listen to the distress and to proposals, and make recommendations that will be submitted to the Social and Economic Cabinet chaired by the Minister of Finance, Dr. Yuval Steinitz.

So far, the Israeli parliament (Knesset) enacted the committee's tax proposals in December, benefiting middle wage earning workers. In addition, a team to examine how to increase competitiveness in the banking industry was appointed by the Ministry of Finance and the Bank of Israel. The team will also give its views on various means for simplifying the banking product, strengthening customers' ability to negotiate with banks, and improving and broadening the service relating to credit information in the household and small business sectors.

Also, the Committee on Increasing of Competitiveness in the Economy has concluded the interim stage of the formulation of its recommendations at the end of September. The Committee has been requested to examine the effect of the existing structure of the economy on the level of competition in various sectors of the economy, its financial stability and its economic efficiency.

The Committee's main recommendation was to prohibit the control or holding in a significant financial institution by a significant real entity or by the controlling shareholder of a significant real entity.

Principal Recommendations of the Committee on Increasing Competitiveness in the Economy

S&P upgraded Israel's credit rating to A+

In September, Standard & Poor's Ratings Services raised its long-term foreign currency sovereign credit ratings on the State of Israel to 'A+/A-1' from 'A/A-1'. S&P also affirmed the local currency ratings at 'AA-/A-1+'. Also, S&P's outlook is stable, and the transfer and convertibility (T&C) assessment remains at 'AA'.
The rating action reflects S&P view of Israel's improved economic policy flexibility as a result of strong growth and careful macroeconomic management.

Completion of the Israeli Chairmanship of EUREKA

Israel's EUREKA chairmanship for 2010-2011 was implemented by MATIMOP, the Israel Industry Center for Research and Development, acting on behalf of the Office of the Chief Scientist in the Ministry of Industry, Trade and Labor.

Throughout the Israeli Chairmanship year, over 220 cooperative R&D projects were approved, totaling more than 300 million euros of private and public investment. Israel is only one of 40 member countries in EUREKA but represents over one-quarter of the overall number of projects approved during the past year.

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