ECONOMIC HIGHLIGHTS3rd QUARTER 2007

STATE OF ISRAELSTATE OF ISRAELMINISTRY OF FINANCEMINISTRY OF FINANCE

INTERNATIONAL AFFAIRS DEPARTMENTINTERNATIONAL AFFAIRS DEPARTMENT

October 10, 2007

Israel’s Economy:

• Export Oriented Growth

• Rapid Development of Technology &

High-Tech Industries

• Entrepreneurial Culture

• Supportive Environment for Business

• Investment and R&D Incentives

Main Characteristics

Criteria20032004200520062007F

GDP (current prices in B$)116.9124.8131.2139.1156.9*

GDP Real Growth Rate (%)2.3%5.2.%5.3%5.2%5.4%**

GDP per Capita (current prices, thousands of $)

17.218.118.920.120.8

GDP per Capita (OECD Calculated by PPP, thousands of $)

2006 data: Israel 21st compared to OECD

26.0527.68

GDP per Capita Growth Rate

(%, Current prices)0.4%3.4%3.5%3.4%3.6%

Exports of Goods & Services (B$)43.552.857.5762.986.7%

Imports of Goods & Services (B$)44.452.357.561.77.9%

Unemployment Rate (%)10.7%10.4%9.0%8.4%7.5%

Inflation Rate ( CPI, end of year)-1.9%1.2%2.4%-0.1%2.4%

Current Account (% of GDP)0.5%0.4%3.3%4.9%

Source: Central Bureau of Statistics, Bank of Israel, Ministry of Finance.

* Using the estimate NIS made by the Ministry of Finance, Multiplied by Bank of Israel’s average US$-NIS exchange rate for 2007.

** Predicted Annual % Change done by the Ministry of Finance. Note differences between real and nominal figures.

GDP per capita by PPP data was available only for 2005 and 2006.

Main Economic Indicators and Forecast

Economic Figures

5

GDP Growth - Israel compared to the World (Annual rate of change (%), in constant prices)

1.6%

-0.9%

1.9%

-0.9%

2.7%2.3%

4.1%

5.2%

3.5%

5.3%

3.9%

5.2%

3.3%

5.4%

3.4%

4.2%

3.3%

4.0%

3.3%

4.1%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

World Growth Israel Growth

Source: Ministry of Finance, Israel Export Institution

Projections for 2007-8: Ministry of Finance; for 2008-9: Israel Export Institute

Economic Figures

7

Private consumption in Israel is a leading factor, as it is worldwide

0.8

5.0

-6.0

-2.3

1.2

-2.3

-5.6

8

5.6

-2.5

-0.4

18.2

4

2.92.3

4.34.5

2.3

10.1

5.9 5.23.7

9.1

6.7

-8

-3

2

7

12

17

2002 2003 2004 2005 2006 2007F

Private Consumption Government Consumption

Investment in Fixed Assets Exports of Goods and Services

Major GDP Components(Annual rate of change (%), in constant prices)

Economic Figures

Source: Central Bureau of Statistics, Ministry of Finance 8

2006 was characterized by sustainable growth in all GDP components

Source: Central Bureau of Statistics

H1: 1st half

Exports of Goods and Services (B$)

27.5

11.8

30.2

13.3

36.6

16.1

40.1

17.4

43.2

19.8

24.2

9.7

0

10

20

30

40

50

60

70

2002 2003 2004 2005 2006 2007 H1Goods Services

Economic Figures

9

Almost all forms of export registered high growth throughout 2006

Structure of Industrial Exports

7,895

15,962 14,862 13,525 14,16617,308 18,794

21,91524,732

8,216

5,1884,731

4,7304,836

4,277

6,3216,694

7,219

0

5,000

10,000

15,000

20,000

25,000

30,000

1995 2000 2001 2002 2003 2004 2005 2006 2007*

US

$ m

illi

on

s

traditional industries

hi-tech industries

35%

65%

23%24%

76%77%

27%

74%

26%27%

74%73%

26%

73%

75%

25%25%

75%

* Jan-Aug, seasonally adjusted, at annual rate.

Economic Figures

11

High Tech and pharmaceuticals rose by 20.6% and 50.7%, respectively, in 2006

Foreign Investments (B$)

Source: Ministry of Finance

1.7

4.53.1

9.6

5.2

12.3

1.73.2

3.95.4

2

9.1

4.8

9.5

14.2

25.8

9.010.6

0

5

10

15

20

25

30

1998 1999 2000 2002 2003 2004 2005 2006 Jan-Aug2007

Direct Investments

Total Investments

Economic Figures

15

2006 registered nearly one hundred purchases of Israeli technology companies

CriteriaEstimate for 2007

Real GDP+ 5.4%

Business GDP+ 6.2%

Exports+ 6.7%

Private Consumption+ 5.2%

Government Consumption+ 3.7%

Investment in Fixed Assets+ 9.1%

Source: Ministry of Finance

Estimated Growth of Main GDP Components 2007

Economic Figures

19

Source: World Economic Forum, Global Competitiveness Index, 2006

Israel Ranks 15 Out of 125 Countries (2005 Rank was 23)

5958

4847

3428

2421

1815

108

64

1

42

Additional data

31

Global Competitiveness Index, 2006

Global Competitiveness Index, 2006SELECTED CATEGORIES

23

20

16

13

9

7

5

4

2

1

0 5 10 15 20 25

Japan

India

Germany

Singapore

Hong Kong

Ireland

United Kingdom

Finland

Israel

United States

21

17

14

12

10

8

6

3

2

1

0 5 10 15 20 25

Ireland

Canada

Taiwan

Finland

Denmark

United States

United Kingdom

Israel

Singapore

Sweden

15

14

10

7

6

5

4

3

2

1

0 5 10 15 20

Ireland

India

Singapore

Finland

Germany

Japan

Israel

United Kingdom

United States

Switzerland

Additional data

Venture Capital Availability

Source: World Economic Forum, Global Competitiveness Index, 2006; Israel Export Institute

14

12

11

9

7

6

4

3

2

1

0 5 10 15

France

Taiwan

Singapore

Korea

Israel

Finland

Germany

United States

Japan

Switzerland

Technological Readiness

Quality of Scientific Research Facilities Company Spending on R&D

32

Dividend Distribution in the Past Years(NIS Millions)

2,559

6,196

222210178137106

19,747

14,609

11,917

54%

76%

79%

70%74%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

2002 2003 2004 2005 2006

30%

40%

50%

60%

70%

80%

90%

Amout of companies distributing dividend

Total dividend distributed (NIS Millions)

Distributing companies – % from totalSource: Tel Aviv Stock Exchange

Additional data

34

The Israeli market continues to appeal to investors despite global competition

Israel and theOECD

Real GDP growth in 2006-7

Nominal GDP growth in 2006-7

Unemployment Rate in 2006-7

GDP per Capita in 2006

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GDP Based on PPP per Capita in 2005 (OECD)

37

38

39

40

36

Real GDP Growth(Annual percentage of change, partial list)

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

Source: OECD and the Ministry of Finance, Israel

Israel and the OECD

5.1%

3.2%

35

2.7%

5.4%

06’ 07’

OECD has invited Israel to discussions for membership of the organization…

Unemployment Rate

(average)

0%

2%

4%

6%

8%

10%

12%

14%

Source: OECD, and the Central Bureau of Statistics, Israel

H1: 1st half

5.9%

8.4%

Israel and the OECD

38

7.8%

0%

2%

4%

6%

8%

10%

12%

5.6%

7.5%7.1%

2006

2007 H1

...and ranks among the world's leading countries with respect to scientists, engineers, high-tech start-ups and R&D spending per capita.

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000GDP (based on purchasing-power-parity

(PPP) ) per capita, in 2006,

IMF calculation, ($US)

Source: IMF, Ministry of Finance

Countries that have been invited for open discussions for joining the OECD.

30,464 23,843

22,677 12,98212,096

Israel and the OECD

39

In 1996, the OECD approved Israel’s request to participate in it’s activities