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The Israeli Economy: Current Trends,
Strength and Challenges
IRMC Conference
Dr. Karnit Flug
Governor of the Bank of Israel
13.06.2016
1
-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
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
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
-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
6
4.5
79.6
76.0
64
66
68
70
72
74
76
78
80
82
4
5
6
7
8
9
10
11
12
13
Participation Rate
Employment rate
Unemployment rate
Labor Market
Quarterly, 1995-2016, 25-64
% %
Source : Central Bureau of Statistics Labor Force Survey
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
Bank of Israel Policy
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
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
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
70
75
80
85
90
95
100
105
110
3.2
3.4
3.6
3.8
4.0
4.2
4.4
4.6
4.8
5.0
5.2
01/12
03/12
05/12
07/12
09/12
11/12
01/13
03/13
05/13
07/13
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
NIS/$
/€ NIS
Exchange Rates
2012-2016
NIS
Index
Nominal Effective
12 Source : BoI
40
60
80
100
120
140
160
180
200
220
01/05
06/05
11/05
04/06
09/06
02/07
07/07
12/07
05/08
10/08
03/09
08/09
01/10
06/10
11/10
04/11
09/11
02/12
07/12
12/12
05/13
10/13
03/14
08/14
01/15
06/15
11/15
Loans for residential
purposes
Survey of
home prices
Index
Survey of Home Price and Loans for Residential Purposes
2005-2016, Monthly
Source : Bank of Israel, Banking Supervision Department13
Bank of Israel Policy Tools
2007-2016
0.1
0
1
2
3
4
5
01/07
06/07
11/07
04/08
09/08
02/09
07/09
12/09
05/10
10/10
03/11
08/11
01/12
06/12
11/12
04/13
09/13
02/14
07/14
12/14
05/15
10/15
03/16
FX
Intervention
(US$)
Interest
Rate
(%)
01/0009/1305/2701/4110/5406/6802/8210/9507/0903/23
01/07
06/07
11/07
04/08
09/08
02/09
07/09
12/09
05/10
10/10
03/11
08/11
01/12
06/12
11/12
04/13
09/13
02/14
07/14
12/14
05/15
10/15
03/16
Additional
provision
for high LTV
loans
Higher
capital
requireme
nts for
high LTV
Variable
Interest
Rate
limit
LTV
limit
PTI
limit and
capital
requirem
ent
Higher
capital
requirements
for high LTV
Bond
purchases
5 Billion $
Higher
capital
requirements
Macroprudential
Measures
14
Natural Gas Purchase program
+ Intervention
Building reserves
Intervention
“The Monetary Committee
assesses that monetary policy
will remain accommodative for
a considerable time”
0
500
1,000
1,500
2,000
2,500
3,000
01/07
06/07
11/07
04/08
09/08
02/09
07/09
12/09
05/10
10/10
03/11
08/11
01/12
06/12
11/12
04/13
09/13
02/14
07/14
12/14
05/15
10/15
03/16
Source : Bol
Fiscal Policy
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
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
0
5
10
15
20
25
30
35
40
45
50
Direct
Indirect
%
30.7
34.4
Source : OECD Revenue Statistics 2015
Tax Burden
2014, Percent of GDP
18
*2013 data
%
Public Expenditure
Percent of GDP, 2014
38.7
45.2
15
20
25
30
35
40
45
50
55
60
19 Source : OECD
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
Behind the Engine of Growth -
Strengths
33.5
48.5
0
10
20
30
40
50
60
Share of the Population Aged 25-64 with
Tertiary-Level Education , 2014
%
Source : OECD Education at a Glance 201522
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
• 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
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
25
Triadic patent families
Number per million inhabitants, 2013
Source: OECD Factbook 2015-2016
125 148
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”.
0.00%
0.05%
0.10%
0.15%
0.20%
0.25%
0.30%
0.35%
0.40%
0.45%
Israel
UnitedStates
Canada
Sweden
Korea
Finland
OECD
Ireland
Japan
UnitedKingdom
Switzerland
Norway
Hungary
France
Portugal
Belgium
Netherlands
Denmark
NewZealand
Germany
Estonia
Austria
Australia
Spain
Slovenia
SlovakRepublic
CzechRepublic
Poland
Italy
Greece
Later stage venture Seed/start-up/early stage
Venture Capital Investment as % of GDP, 2014
Source : OECD27
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)
Long Term Challenges
$
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
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)
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
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
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:
Thank You

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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
  • 6. 6 4.5 79.6 76.0 64 66 68 70 72 74 76 78 80 82 4 5 6 7 8 9 10 11 12 13 Participation Rate Employment rate Unemployment rate Labor Market Quarterly, 1995-2016, 25-64 % % Source : Central Bureau of Statistics Labor Force Survey
  • 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
  • 8. Bank of Israel Policy
  • 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
  • 13. 40 60 80 100 120 140 160 180 200 220 01/05 06/05 11/05 04/06 09/06 02/07 07/07 12/07 05/08 10/08 03/09 08/09 01/10 06/10 11/10 04/11 09/11 02/12 07/12 12/12 05/13 10/13 03/14 08/14 01/15 06/15 11/15 Loans for residential purposes Survey of home prices Index Survey of Home Price and Loans for Residential Purposes 2005-2016, Monthly Source : Bank of Israel, Banking Supervision Department13
  • 14. Bank of Israel Policy Tools 2007-2016 0.1 0 1 2 3 4 5 01/07 06/07 11/07 04/08 09/08 02/09 07/09 12/09 05/10 10/10 03/11 08/11 01/12 06/12 11/12 04/13 09/13 02/14 07/14 12/14 05/15 10/15 03/16 FX Intervention (US$) Interest Rate (%) 01/0009/1305/2701/4110/5406/6802/8210/9507/0903/23 01/07 06/07 11/07 04/08 09/08 02/09 07/09 12/09 05/10 10/10 03/11 08/11 01/12 06/12 11/12 04/13 09/13 02/14 07/14 12/14 05/15 10/15 03/16 Additional provision for high LTV loans Higher capital requireme nts for high LTV Variable Interest Rate limit LTV limit PTI limit and capital requirem ent Higher capital requirements for high LTV Bond purchases 5 Billion $ Higher capital requirements Macroprudential Measures 14 Natural Gas Purchase program + Intervention Building reserves Intervention “The Monetary Committee assesses that monetary policy will remain accommodative for a considerable time” 0 500 1,000 1,500 2,000 2,500 3,000 01/07 06/07 11/07 04/08 09/08 02/09 07/09 12/09 05/10 10/10 03/11 08/11 01/12 06/12 11/12 04/13 09/13 02/14 07/14 12/14 05/15 10/15 03/16 Source : Bol
  • 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
  • 18. 0 5 10 15 20 25 30 35 40 45 50 Direct Indirect % 30.7 34.4 Source : OECD Revenue Statistics 2015 Tax Burden 2014, Percent of GDP 18 *2013 data
  • 19. % Public Expenditure Percent of GDP, 2014 38.7 45.2 15 20 25 30 35 40 45 50 55 60 19 Source : OECD
  • 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
  • 21. Behind the Engine of Growth - Strengths
  • 22. 33.5 48.5 0 10 20 30 40 50 60 Share of the Population Aged 25-64 with Tertiary-Level Education , 2014 % Source : OECD Education at a Glance 201522
  • 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
  • 25. 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 25 Triadic patent families Number per million inhabitants, 2013 Source: OECD Factbook 2015-2016 125 148
  • 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: