Keynote Speech on "The Israeli Economy: Current Trends, Strength and Challenges” @IRMC2016
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IRMC2016 - Keynote speech Karnit Flug - Governor of Bank of Israel - The Israeli Economy: Current Trends, Strength and Challenges”
1. The Israeli Economy: Current Trends,
Strength and Challenges
IRMC Conference
Dr. Karnit Flug
Governor of the Bank of Israel
13.06.2016
1
2. -4
-2
0
2
4
6
8
10
GDP Growth Rates
GDP annual % change (2000-2017F)
2 Source: IMF
Forecast
Israel
Advanced
Economies
Developing
Economies
*Simple average for 21 rich OECD countries and emerging markets according to IMF definition
3. GDP per capita Growth Rates
GDP per capita annual % change (2000-2015)
3 Source : IMF
Israel
Developing
Economies
Advanced
Economies
*Simple average for 21 rich OECD countries and emerging markets according to IMF definition
-6
-4
-2
0
2
4
6
8
4. Source : Bol and IMF4
0
20
40
60
80
100
120
140
World
Trade
*Excl. diamonds and start-ups
Index
2008=100
Israeli
Exports
Israel’s Goods and Services Exports
and World Trade, 1996-2017F
Forecast
5. -4
-2
0
2
4
6
8
10
2007 2008 2009 2010 2011 2012 2013 2014 2015
%
Public consumption
Private consumption
Exports (excl. diamonds )
Investment
Total increase in uses
The increase in uses: The total increase and the
contribution of uses
2007-2015
Source: BoI Report 2015, CBS
Structural Change in the Composition of Growth –Private
Consumption is Leading While Exports are in Stagnation
5
7. Real Wage per Employee Post*
1995-2015
NIS
*Seasonally adjusted, 12 months moving average, 2015 prices
Source : Central Bureau of Statistics Data
7,500
8,000
8,500
9,000
9,500
10,000
Total Public Sector Business Sector
7
9. BOI’s Policy Objectives
Maintain price stability, as the central goal.
Support economic policy, primarily growth,
employment and reducing social gaps.
Support the stability and orderly activity of the financial
system.
9
10. 1.4
-0.9
-4
-2
0
2
4
6
8
* Forward inflation expectations 3-5 years
%
Inflation 12 month
Expectations Forward*
Actual Inflation and Inflation Expectations
2006-2016
10 Source: Bol
11. Inflation excluding
energy and regulation
0.4
0.6
-0.9
-2
-1
0
1
2
3
4
5
6
09/13
10/13
11/13
12/13
01/14
02/14
03/14
04/14
05/14
06/14
07/14
08/14
09/14
10/14
11/14
12/14
01/15
02/15
03/15
04/15
05/15
06/15
07/15
08/15
09/15
10/15
11/15
12/15
01/16
02/16
03/16
04/16
Inflation excluding
energy, food, fruit and
vegetables, and without
regulation
Source : CBS (Israel) & BoI
Annual inflation
Factors of a One-Off Nature and Energy Prices
Contribute to the Low Inflation
11
%
-60
-50
-40
-30
-20
-10
0
10
20
30
40
09/13
11/13
01/14
03/14
05/14
07/14
09/14
11/14
01/15
03/15
05/15
07/15
09/15
11/15
01/16
03/16
05/16
Commodities
Excl. Energy
Brent Crude Oil
Price
Energy and Commodity Prices Declined
*12-month % change
16. Budget Deficit* and Deficit Target
(Percent of GDP, 2000-2016)
%
*Percent of GDP; excluding credit extended. The data refers to the deficit excluding the Bank of Israel’s profits.
Source : Bol16
2.9 2.9
0
1
2
3
4
5
6
7
17. Source : The Bol and the OECD.17
40
50
60
70
80
90
100
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
%
Public Debt - Israel
Public Debt - OECD*
1.6
3.0
-4.0
-2.0
0.0
2.0
4.0
Norway
Luxembourg
Estonia
Sweden
Korea
Switzerland
Finland
Denmark
NewZealand
Canada
Australia
Czech…
Japan
Netherlands
Germany
Poland
OECD
Slovak…
France
Austria
United…
Belgium
UnitedStates
Spain
Israel
Slovenia
Ireland
Iceland
Hungary
Greece
Italy
Portugal
General government net debt interest payments
Per cent of nominal GDP 2015
Public Debt in Israel is Decreasing but Net Interest
Payments are Still High in International Comparison
20. 30.7
42.2
15
20
25
30
35
40
45
50
55
60
Source :OECD and the Bol
• The data is calculated by decreasing the net debt interest payments and defense expenditure from the general government total outlays
%
Civilian Public Expenditure Excluding Interest
Percent of GDP, 2014
20
23. Israel is Leading in International Innovation
Rankings
Source: World Economic Forum 2015 &Bloomberg23
Factors in Israel that encourage innovation
Quality universities that provide the economy with human
capital, scientific aptitude, and technological abilities
Collaboration between the universities and industry
Government support for commercial R&D
Developed venture capital industry
Ranking 35
Index
24. • 73 Israeli companies are listed on Nasdaq
• Over 300 international companies established Israeli R&D centers
• More than 4,000 startups : The world’s greatest concentration of
high tech companies outside Silicon Valley
• Leading in cyber security: 430 cyber security companies and
startups. In 2015, Israel’s share of private investment in the field was
nearly 20% (second only to the US).
Source: IMF WEO April 2014, Israel innovation authority, Nasdaq, The National Cyber Bureau24
Israel’s Relative Advantages - Technology
26. Israel’s Relative Advantages – Water Innovation
• World leader in desalination; With a network of five coastal
desalination plants, which together produce 75% of all water
supply to households.
• Leading in Waste-Water Recycling with a rate of 80%.
• Israel developed and patented the “Drip Irrigation”, that has not
only produced huge reduction in agricultural water use, but has also
vastly increased yields, and it is used worldwide.
26 Source: The Israel water authority , “Natafim”, “Mekorot”.
28. 28
Agriculture, forestry and
fishing
Food products, beverages
and tobacco
Textiles, leather and
footwear
Wood and products of
wood and cork
Pulp, paper, paper
products, printing and
publishing
Rubber and plastics
products
non-metallic mineral
products
Basic metals and fabricated
metal products
Machinery and equipment
Electrical & optical
equipment
Transport equipment
Electricity gas and water
supply
Construction
Wholesale and retail trade
Hotels and restaurants
Transport, storage and
communications
Financial intermediation
Real estate, renting and
business activities
Chemicals
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9
Productivity Ratio
Exports as share of the industry’s output
Productivity Gap—Israel vs. OECD Average, and Exports’
Share of Output in Israel, by Industry, 2010
Source : Eurostat, OECD, BoI, CBS (Israel)
30. $
Source : The Conference Board Total Economy Database 2015
Output Per Hour Worked
1995-2015,$ PPP, 2015 Constant Prices
30
0.000
10.000
20.000
30.000
40.000
50.000
60.000
70.000
Israel
OECD
21 Rich
Countries
31. 31
Agriculture,
forestry and fishing
Food products, beverages
and tobacco
Textiles, leather and
footwear
Wood and products of
wood and cork
Pulp, paper, paper
products, printing and
publishing
Rubber and plastics
products
non-metallic mineral
products
Basic metals and fabricated
metal products
Machinery and equipment
Electrical & optical
equipment
Transport equipment
Construction
Wholesale and retail
trade
Hotels and restaurants
Transport, storage and
communications
Financial intermediation
Real estate, renting and
business activities
Chemicals
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9
Productivity Ratio
Exports as share of the industry’s output
Productivity Gap—Israel vs. OECD Average, and Exports’
Share of Output in Israel, by Industry, 2010
Source : Eurostat, OECD, BOI, CBS (Israel)
32. 0
10
20
30
40
50
60
70
80
90
100
Jewish Non-Ultraorthodox Women
Ultraorthodox Women
Arab Women
OECD Women
32
%
Source : Based on Central Bureau of Statistics Data
Women Employment Rate, 25-64
10
20
30
40
50
60
70
80
90
100
Jewish Non-Ultraorthodox Men
Ultraorthodox Men
Arab Men
OECD Men
% Men Employment Rate, 25-64
Employment Rate by Population Groups
33. 0
0.1
0.2
0.3
0.4
0.5
0.6
Korea
Switzerland
Iceland
Netherlands
Norway
SlovakRepublic
Turkey
Sweden
Denmark
CzechRepublic
NewZealand
Australia
Poland
Slovenia
OECD
Mexico
Israel
Hungary
Belgium
Finland
Estonia
Austria
Germany
Luxembourg
Italy
Spain
UnitedStates
France
Portugal
Greece
Ireland
Gini Index, 2012*, at disposable
income, post taxes and transfers
Source : Based on Central Bureau of Statistics Data and OECD33
Strength of the effect of tax
policy and transfer payments on
the Gini Index, 2012
0
0.1
0.2
0.3
0.4
0.5
0.6
Denmark
SlovakRepublic
Slovenia
Norway
CzechRepublic
Iceland
Finland
Belgium
Sweden
Austria
Netherlands
Switzerland
Hungary
Germany
Poland
Luxembourg
Ireland
France
Korea
OECD
Australia
Italy
NewZealand
Spain
Estonia
Portugal
Greece
Israel
UnitedStates
Turkey
Israel
Gini Index, 2012*, at market income, before
taxes and transfers
Economic Income Inequality is Similar to the OECD
Average, but the Effect of Policy, Particularly Transfer
Payments, is Low in International Comparison.
0.0
0.1
0.2
0.3
0.4
0.5
Switzerland
Israel
UnitedStates
NewZealand
Australia
Netherlands
Estonia
United…
Spain
Iceland
Italy
Poland
Sweden
OECD
Portugal
Norway
SlovakRepublic
Luxembourg
Greece
France
Germany
Denmark
CzechRepublic
Austria
Belgium
Slovenia
Finland
Ireland
Contribution of tax system
Contribution of transfer payments
*Israel data for 2014
34. 34
Integrate population sectors into the labor market: Active labor market
policy
• Ultra-Orthodox (men)
• Arab (women)
• Older workers (around retirement age)
Increase human capital: Education and professional training
Remove obstacles to growth and productivity
• Infrastructure
• Business environment
• Competitiveness
• Promote reforms (ports, electricity, and the natural gas and energy industry)
• Research and development
Increasing quality and efficiency of public service systems (health, long-
term care, welfare, pension, etc.)
Diversify trade geographically and by industry
The Need to Formulate a Focused Strategic Plan: