Tuesday, February 24, 2009

Economic Highlights - 2008

(Communicated by the Ministry of Finance)

From Economic Highlights - 4th quarter 2008
Ministry of Finance - International Affairs Department
February 2009

While the global crisis has started affecting the Israeli market, initiatives such as the acceleration program, the pension safety net and the monetary program to increase liquidity are all aimed to offer new jobs, protecting private savings and promote continuous growth in Israel. The impact of operation "Cast Lead" on Israel’s economy has been limited as most businesses in Israel’s southwest, near the Gaza strip, continued to operate. Israel’s financial and industrial center, located out of the rocket range, continued to operate in full scale. The ports and other trade facilities continued to operate as usual, ensuring the flow of goods in and out of the country were running smoothly.

- The Knesset Finance Committee approved the pension safety net, which is designated to compensate some market losses by pension funds for savers near retirement age.

- The Acceleration Program is a package of economic measures designed to accelerate activity in the economy in light of the global recession. The program allocates funds towards infrastructure, research and development, the credit sector and the labor market, designed to promote continuing growth in the economy.

- In order to strengthen the labor market on an immediate basis, the government will encourage the creation of new workplaces, employment training, professional retraining and increased demand for Israeli workers. Among the measures taken in the area of investment in research and development a new research and development center will be established in the periphery. The center is expected to employ more than 200 employees at high salary levels, and to encourage quality research and development work in the periphery.

- The interest rate set by the Bank of Israel, peaking at 4.25% this September was gradually decreased to its current level of 0.75%. This is designed to help strengthen the economy’s ability to cope with the implications of the global economic crisis and support real activity. It is consistent with the return of inflation to the target range of 1-3 percent within the next few months."

Selected economic data

GDP growth:
Growth in 2007: 5.4%; 2006: 5.2%; 2005: 5.1%
Estimated growth for 2008: 4.1%
GDP per Capita, based on PPP, 2007: $27,957

Import growth:
Growth in 2007: 11.7%; 2006: 3.6%; 2005: 3.3%
Estimated growth for 2008: 2.8%

Export growth:
Growth in 2007: 8.6%; 2006: 6.1%; 2005: 4.2%
Estimated growth for 2008: 3.6%

In 2008, the Consumer Price Index grew by 3.8%, following a 3.4% increase in 2007.

In 2008, the Israeli Shekel (NIS) appreciated compared to most of the foreign currencies traded in Israel. The Shekel appreciated by 12.6% compared to the US Dollar, following a 7.8% appreciation in 2007. The Shekel also appreciated by 6.6% compared to the Euro, and by 19.6% compared to the British Pound.

The year 2008 saw a record number of tourists to Israel: more than 3 million visitors, a 32% increase compared to 2007, which registered the previous record of 2.6 million visitors.

Israel's credit rating

Peter Doyle, head of the International Monetary Fund delegation which visited Israel this December, said that in comparison with other leading economies, Israel is well prepared to face the economic crisis and supported the policy measures taken so far by the Minister of finance and the Governor.

Credit rating agencies Moody's and S&P reconfirmed Israel's credit ratings. In general, S&P stated that "The rating affirmation reflects the government's commitment to continued fiscal discipline and the resilience of the Israeli economy after five years of strong GDP growth at over 5%, notwithstanding a tense political and fiscal environment." Moody's statement noted that: "Israel’s economy has weathered extremely difficult periods in the past, at times when government debt was more burdensome and the balance of payments more fragile... The government's ample access to credit is a crucial underpinning for the country's high ratings given its susceptibility to shocks."

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