STATE OF ISRAEL

MINISTRY OF FINANCE

International Affairs Department

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1 Kaplan St. Jerusalem 91030, P.O. Box 3100, Tel: 02-5317200, Fax: 02-5695349

English: www.financeisrael.mof.gov.il Hebrew: www.mof.gov.il

July 2011

Economic Highlights 2

nd Quarter 2011

Website: www.financeisrael.mof.gov.il Follow us on Twitter

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Table of Contents

Headlines ......................................................................................................................... 1

Latest News ..................................................................................................................... 2

Monetary News and Capital Market ............................................................................... 4

From the Press ................................................................................................................ 5

Environmental Economy News ...................................................................................... 6

Economic Figures ........................................................................................................... 7

We Welcome Your Feedback .......................................................................................... 8

Headlines

Raised Growth Forecasts for the Israeli Economy Page 2

Robust and Determined: News from Israel's R&D Sector Page 3

Moody's, Fitch Left Israel's Ratings Unchanged Page 4

Israel Ranked 17th in IMD World Competitiveness Yearbook 2011 Page 5

Gallup Survey Finds Israel 7th Most Thriving Country Page 5

New and Bigger Desalination Plant to be built in Sorek Page 6

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1 Kaplan St. Jerusalem 91030, P.O. Box 3100, Tel: 02-5317200, Fax: 02-5695349

English: www.financeisrael.mof.gov.il Hebrew: www.mof.gov.il

Latest News

Privatization of the Eilat Port is Underway

The Government Companies Authority Issued a Public Announcement for the Sale of the State's Holdings in the Eilat Port Company. The port of Eilat handles approximately 6% of Israel's maritime trade, and employs around 130 workers. Minister of Finance, Dr. Yuval Steinitz, said: "The privatization of the Eilat port will increase exports and imports through Israel's southern gateway and strengthen the city of Eilat."

Read More

(Source: Ministry of Finance)

IMF, OECD Raise Forecasts for the Israeli Economy

The International Monetary Fund increased its growth prediction for the Israeli economy to 3.8% in 2011 and 2012.

Also, The OECD predicts that Israel will achieve 5.4% GDP growth in 2011 and 4.7% in 2012.

The Israeli economy grew 4.7% in 2010, with a 7.6% growth in the 4th quarter of 2010. The Bank of Israel has

forecast the Israeli economy to grow 4.5% in 2011 and 4.0% in 2012. (Source: Ministry of Finance, Ministry of Industry, Trade and Labor, IMF, OECD, Globes)

Government of Israel 2010 Financial Statements Released

by the Accountant General in the Ministry of Finance.

Press Release with Main Data

New Tender for the Red Line of the LRT and Metro in Tel Aviv Includes monitoring the execution of engineering.

Read More

Ministry of Finance Launches NIS 2.75 Billion Aid Plan for Exporters

Minister of Finance, Dr. Yuval Steinitz, has asked the Knesset Finance Committee to approve a framework of guarantees for exporters in order to launch a new plan and expand the scope of activity of Ashra Ltd. The goal of the plan is to expand Israel’s export activity out of recognition of the importance of exports as a growth engine for the economy. The NIS 2.75 billion plan will expand the financing solutions available to exporters and will also increase the basket of services offered by Ashra, the government insurance company.

The plan includes two steps for expanding the medium and long-term credit offered to Israeli exporters:

1. State guarantee for export deals in the medium range – the Top up 2 Plan. 2. Expanding the scope of activity of Ashra Ltd.

Read More

(Source: Ministry of Finance)

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1 Kaplan St. Jerusalem 91030, P.O. Box 3100, Tel: 02-5317200, Fax: 02-5695349

English: www.financeisrael.mof.gov.il Hebrew: www.mof.gov.il

Permission for 'Noa North' and 'Or' Gas fields Development Granted

In June, the Ministry of National Infrastructures has given permission to Nobel Energy to begin developing the 'Noa North' natural gas field, located near the town of Ashkelon and the Gaza Strip coast. The ministry has instructed the company to submit its drilling and development plans before the middle of July.

The Ministry of National Infrastructures also ordered Israel Oil Co. to develop the 'Or' gas structure, which is part of the Med Yavne license. Med Yavne is adjacent to

the Noa and Yam Tethys fields off the coast of southern Israel. The company was instructed to present a drilling and development plan by August 1. (Source: Ministry of National Infrastructures, Globes, Ynet)

Robust and Determined: News from Israel's R&D Sector

Israel is well known for its robust R&D sector, and in 2011, Israel kept its position as 1

st in the world for total expenditures on R&D as a % of GDP (IMD

WCY 2011). Also, Israel holds the EUREKA (the pan-European network for market-oriented, industrial R&D) chairmanship for 2011. Following are several news items from Israel's R&D Sector in the last 3 months:

Israel to be 1st non-Euro member of elite research club The cabinet is expected approve the $15 m. annual entrance fee that will allow it to become part of the European Organization for Nuclear Research.

Israel signs R&D cooperation agreement with Shanghai The Shanghai Municipality has marked several industries that it wants to promote through increased R&D activity in the coming years.

Israel, Taiwan extend scientific collaboration Israel and Taiwan will likely expand academic exchanges in the fields of marine science and robotics following the signing of a science cooperation deal.

Marvell to invest $200m in Israel R&D center Marvell CEO Dr. Sehat Sutardja and VP Weili Dai will officially announce the investment at a meeting with President Peres.

Shimon Peres to raise funds for Israeli brain research The President will set up an NPO for brain research led by Dr. Rafi Gidron.

AMD to establish Israel R&D center in Tel Aviv

The R&D center is based on 3D graphics developer Graphic Remedy, acquired a few months ago.

World Leader EMC to Open R&D Center in Beer Sheva The R&D center is based on 3D graphics developer Graphic Remedy, acquired a few months ago.

EURAXESS Israel launches portal for mobile researchers The portal contains all necessary information for a researcher moving to Israel.

General Electric to set up new Israeli R&D center in Haifa The R&D center will do basic research in medical devices, clean energy, and water technologies.

Read More:

Israel Ranked 17th in IMD World Competitiveness Yearbook 2011

Eureka – Israel Chairmanship Website (Source: Ministry of Finance, Ministry of Industry, Trade and Labor, Ministry of Foreign Affairs, Eureka, Jerusalem Post, Globes, Focus Taiwan)

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1 Kaplan St. Jerusalem 91030, P.O. Box 3100, Tel: 02-5317200, Fax: 02-5695349

English: www.financeisrael.mof.gov.il Hebrew: www.mof.gov.il

Monetary News and Capital Market

Moody's, Fitch Left Israel's Ratings Unchanged

Further Significant Support for the Israeli Government's Economic Policy: Moody's Credit Rating Agency Left Israel's A1-Stable Rating Unchanged, Fitch Ratings Left Israel's A Stable Rating Unchanged.

Moody's representatives noted in their report that the A1 rating balances Israel's economic and financial strength with the geopolitical challenges it faces. Vice President in Moody's Sovereign Risk Group, Mr. Anthony Thomas, said in the report that the Israeli economy is strong and dynamic and notes favorably the coherent macroeconomic policy implemented by the Israeli government.

Fitch noted in their announcement that "the affirmation reflects the resumption of the downward trend in public deficits and debt, the robust outlook for Israeli growth, and a strengthening in the sovereign's external balance sheet." Ms. Purvi Harlalka, director of Fitch's Middle East and Africa Sovereign Ratings Group, said that "these positive trends mitigate concerns surrounding an overheating housing market and a more difficult geopolitical environment.

Read More:

Moody's International Credit Rating Agency Releases Its Annual Credit Report on Israel, Leaving the Country's A1-Stable Rating Unchanged

Fitch Ratings Supports Israel's Economic Policy, Leaving the Country's A Stable Rating Unchanged

(Source: Ministry of Finance, Moody's, Fitch Ratings)

Barclays Commends Israel's Attractive Market Valuation

Barclay's chose the Israeli Currency (Shekel) as their foreign exchange pick for the EMEA (Europe, Middle East and Africa).

According to a Barclay's report on emerging markets from June: "despite a 13% sell-off from the January highs, Israel benefits from strong economic growth and low volatility, and the shekel is our foreign exchange pick in EMEA, which augers well for equity markets."

(Source: Barclay's, Globes)

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1 Kaplan St. Jerusalem 91030, P.O. Box 3100, Tel: 02-5317200, Fax: 02-5695349

English: www.financeisrael.mof.gov.il Hebrew: www.mof.gov.il

From the Press

HSBC: Israeli Economy is Robust

HSBC analyst Jonathan Katz described the state of the Israeli economy as "robust."

Katz also wrote that "the fiscal budget performance in the first three months of the year has been a pleasant surprise, reflecting a budget surplus of NIS 2 billion as compared to a budget deficit of NIS 3.6 billion in Q1 2010."

Katz projected that the fiscal target of 3% of GDP will be met in 2011, and that governmental debt will decline from 75% of GDP in 2010, to 73% in 2011 (HSBC estimate), and possibly lower.

(Source: Globes)

Israeli Venture Capital Reaches Pre-Crisis Level

According to PwC Israel Money- Tree Report, Israeli VC backed companies raised $342 million in Q1 2011, double the amount raised in the corresponding quarter of 2010, and 34% more than in Q4 2010. This was the largest amount raised since the collapse of Lehman Brothers in Sep. 2008.

Also, IVC and KPMG Report finds that Israeli high-tech capital raising in Q1/2011 rose by 39% from Q4 2010, as Life sciences sector continues to lead capital raising.

(Source: Globes, PwC, IVC Research Center)

Israel Ranked 17th in IMD World Competitiveness Yearbook 2011

Israel keeps its position as 17th in the overall ratings, as it was ranked 17th also in 2010.

The International Institute for Management and Development (IMD) is a world-leading business school. IMD publishes the World Competitiveness Yearbook, which ranks and analyzes how a nation’s environment creates and sustains the competitiveness of enterprises. In IMD's World Competitiveness Yearbook (WCY) in 2011, Israel is 1st in the world in total expenditures of R&D as % of GDP, entrepreneurship, central bank policy and scientific research. Also, In IMD WCY 2011 Israel is 2nd in the world in access to venture capital and public expenditure on education. Israel's weak ratings were in immigration laws, governmental debt as a % of GDP, long term unemployment and cost of living.

Read More

(Source: IMD, Ministry of Finance, Federation of Israeli Chambers of Commerce)

Gallup Survey Finds Israel 7th Most Thriving Country

According to a survey conducted by Gallup Institute, 63% of respondents in Israel said they were happy with their lives, ranking Israel as 7

th out of 124 countries.

Gallup classifies respondents' well-being as "thriving," "struggling," or "suffering," according to how they rated their current and future lives on a ladder scale with steps numbered from 0 to 10. In 2010, Israel was ranked by Gallup and Forbes as the 8

th

happiest place in the world to live in. Also, Israel was ranked 22nd

in a 2010 Newsweek survey of "true national champions."

Read More:

Gallup Global Wellbeing Survey findings

Israel ranked 8th by Forbes and Gallup in 2010

Israel ranked 22nd

by Newsweek in 2010

(Source: Gallup, Ynetnews, Jerusalem Post, Forbes, Newsweek)

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1 Kaplan St. Jerusalem 91030, P.O. Box 3100, Tel: 02-5317200, Fax: 02-5695349

English: www.financeisrael.mof.gov.il Hebrew: www.mof.gov.il

Environmental Economy News

15th Annual Clean Tech Expo to be Held in Israel in July

The 15th annual Clean

Tech Expo in July will highlight the Israeli solutions for energy & water needs of Brazil, Russia, India & China.

Read More:

CleanTech 2011 Expo website

Article in Ministry of Foreign Affiars website (Source: Ministry of Foreign Affairs)

Arava Power Inaugurates Israel's 1st Solar Field in the Negev

The 1st Israeli solar

field is spread over 80 dunam in Kibbutz Ketura, and consists of 18,500 photovoltaic panels, that are expected to produce

about 9 million kilowatts per year. The Israel Electric Corporation will pay Arava Power NIS 1.5 per kilowatt hour. (Source: Globes, ISRAEL21C)

Green Desalination Process Put to the Test by IDE in China

Israeli desalination company IDE Technologies has introduced a greener way to pull salt from water. Putting it to the test in China, the Israeli company has created a win-win solution for the environmentally conscious Chinese: using runoff steam from a power plant to help run the desalination plant. The result is water for the power plant, drinking water for the community and salt to sell.

IDE also built the IDE MED desalination plant in Tianjin, China. According to the CEO of IDE, Mr. Avshalom Felber, The Israeli-built IDE MED is the country’s largest and greenest one yet. Using a process called multi-effect distillation (MED), the plant is claimed to be 50 percent more energy efficient than any other thermal desalination plant today.

Read More

(Source: Israel NEWTech, Israel Trade Commission in Sydney, Australia)

One of the Biggest Desalination Plants of its Kind to be built in Sorek

Photo: SDL

On Completion of the Plant, the Desalinated Water Will Constitute over 65% of Israel’s Domestic Water Consumption.

The financing agreement for the construction and operation of the seawater desalination plant in Sorek was signed on May 23

rd. The plant, with an output of 150

million cubic meters per year and a cost of approximately USD 400 million, is expected to be the second largest in the world.

SDL was chosen by the Finance Ministry’s Inter-Ministerial Tenders Committee for Seawater Desalination as the winner of the tender for financing, planning, building and operating the plant in Sorek. The plant, whose construction will be completed in 2013, is the 4

th BOT (Build-Own-Transfer) project to be built in cooperation

with the private sector. It will operate using reverse osmosis technology.

The plant constitutes a global achievement in light of its record output and the low price of the desalinated water, just NIS 2.01 per cubic meter, representing a significant saving for Israel’s water sector.

Read More

(Source: Ministry of Finance, Ynetnews, SDL)

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1 Kaplan St. Jerusalem 91030, P.O. Box 3100, Tel: 02-5317200, Fax: 02-5695349

English: www.financeisrael.mof.gov.il Hebrew: www.mof.gov.il

Economic Figures

Economic Data Data is calculated at an annual Year-on-Year rate of change

Data from previous editions is constantly being updated

See more extended economic data in our Economic Highlights PowerPoint Presentation

GDP Growth

Business GDP Growth

Private Consumption Growth

Public Consumption Growth

2009

0.8%

0.2%

1.4%

2.2%

2010

4.7%

5.4%

1.4%

2.2%

Q4 2010

7.6%

8.7%

8.8%

4.7%

Q1 2011

4.7%

5.8%

6.8%

-5.7%

GDP Per Capita, Based On PPP For 2009: 29,531$

Consumer Price Index In 2008 prices

May 2010

Jun 2010

Jul 2010

Aug 2010

Sep 2010

Oct 2010

Nov 2010

Dec 2010

Jan 2011

Feb 2011

Mar 2011

Apr 2011

99.5 99.8 100.3 100.8 101.0 101.3 101.4 101.8 102.0 102.3 102.5 103.1

97

98

99

100

101

102

103

104

5.2010 6.2010 7.2010 8.2010 9.2010 10.2010 11.2010 12.2010 1.2011 2.2011 3.2011 4.2011

Foreign Trade

Goods and Services

Import Growth

Export Growth

2009

-14.1%

-12.5%

2010

12.6%

13.6%

Q4 2010

15.6%

11.3%

Q1 2011

15.9%

16.0%

(Source: Ministry of Finance, Central Bureau of Statistics, IMF)

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1 Kaplan St. Jerusalem 91030, P.O. Box 3100, Tel: 02-5317200, Fax: 02-5695349

English: www.financeisrael.mof.gov.il Hebrew: www.mof.gov.il

our FeedbackWe Welcome Y

Balances

2010 Q4 2010 Q1 2011

Current account Surplus

As % of GDP

2.9% 1.0% 0.6%

Budget Deficit

Central government

3.7% - - - -

Gross Debt (% of GDP)

General government gross financial liabilities

76.4% - - - -

Investments

Gross Domestic Capital Formation

Gross Investments in Fixed Assets

Gross Israeli Investments Abroad (Billion$)

Gross Foreign Investments in Israel (Billion$)

Gross Foreign Direct Investments (Billion$)

2010

1.9%

12.6%

27.7$B

17.6$B

5.2$B

Q3 2010

2.1%

20.8%

3.9$B

3.7$B

1.7$B

Q4 2010

20.0%

19.7%

10.1$B

6.9$B

2.4$B

Q1 2011

33.3%

23.7%

7.0$B

5.1$B

2.6$B

See more extended economic data in our Economic Highlights PowerPoint Presentation (Source: Ministry of Finance)

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Roni Hershkovitz

Director

Overseas Economic Information

International Affairs Department

Ministry of Finance

Jerusalem

Israel

Assaf Luxembourg

Overseas Economic Information

International Affairs Department

Ministry of Finance

Jerusalem

Israel

Lauren Abecassis-Kandravy

Overseas Economic Information

International Affairs Department

Ministry of Finance

Jerusalem

Israel