BDI CODE 2014 - Israel's Leading Companies, Law Firms, Accounting Firms, Best Companies To Work For - page 7

the israeli economy
BdiCode 2014
In 2013, Gross Domestic Product (GDP) in Israel reached almost 291 billion dollars
(approximately 36,200 dollars per capita). In the same year, GDP increased, in
real terms, by 3.3%, similar to 2012. GDP grew by only 2.5%when subtracting
the contribution of natural gas. In the past 5 years, the average rate of growth
of Israel's GDP has been approximately 4%, compared with 0.7% on average
in OECD countries.
A number of factors were responsible for the slowdown in growth in 2013:
slow growth in global trade which affected Israel's exports, the appreciation in
the value of the Shekel vis-à-vis major currencies reduced export profitability
and lowered the costs of competing imports. Finally, the policy of fiscal restraint
imposed to reduce the Government deficit.
GDP is expected to grow in 2014 by 2.9%. Neutralizing the effect of natural gas
production from the "Tamar" well, growth is estimated to reach 2.6%. GDP is
forecast to grow at 3.0% in 2015. The forecast 2015 growth will be driven by
investment and exports as a result of the expected improvement in the growth
rate of global trade.
Exports (excluding diamonds and excluding the sale of start-up companies)
decreased by 1.2% in 2013. As stated, two factors influenced exports: Aweakening
in overseas demand and the appreciation, in real terms, of the Shekel against
major currencies, which negatively affected exports profitability.
Private consumption grew by 3.7% in 2013 compared with 3.2% in 2012. The
favorable job market, in particular, the continued decrease in the unemployment
rate, was the main factor that contributed to the growth in private consumption.
Gross Domestic Investments grew by 0.8% in 2013 compared with 3.2% in
2012. The lower rate of growth in 2013 was the result of large investments in
the past in the electronic components sector related to the opening of Intel's
new plant in Israel. The decrease in investment negatively contributed to the
rate of growth of investment in the economy.
Government Deficit
Broad Government deficit represented 3.2% of GDP in 2013 compared with
3.9% in 2012. Government revenues in 2013 were higher than forecast in the
budget, mainly due to an increase in revenues from the sale of startup companies
and due to the tax incentives granted for the release of "trapped" profits. Gross
Public Debt decreased to 67.4% of GDP in 2013, compared with 68.2% in
2012. It is important to note that public debt has been on a downward trend
over the past few years.
The inflation rate reached 1.8% in 2013 compared with 1.6% in 2012. Three
main factors contributed to the change in prices in 2013: Housing services, the
weight of which in the Consumer Price Index is about 25%. The increase, in real
terms, of the price of housing reached 6% in 2013, after the price of housing
increased from 2008 to 2012 by about 50%. Secondly, the food item: food prices
in Israel rose in 2013, despite the reduction in prices due to the social protests
and the reduction in customs tariffs. In contrast to these items, the prices of
communication services continued to fall in 2013.
The rate of unemployment in the market decreased to 6.2% in 2013 compared
with 6.9% in 2012. The moderation in the increase of the demand for workers
in the business sector caused the employment rate to increase less than in 2012.
The increase in the employment rate resulted from a relatively rapid increase in the
number of employees in the public sector. The number of employers in the private
sector increased only moderately. Part of the decrease in the unemployment rate
has been the result of long term processes and not from the business cycle. The
reduction in unemployment has been due to the rise in the weight of branches
in which employee conservation is crucial: employers in these branches prefer
to reduce the average number of work hours and not the number of employees.
The unemployment rate for 2014 is estimated to be 5.9%.
Balance of Payments
The Current Account surplus in the Balance of Payments amounted to 7.2 billion
dollars in 2013, about 2.5% of GDP. This compares with a surplus of 0.8 billion
dollars in 2012 (about 0.3%of GDP). The Balance of Goods and Services account
recorded a surplus of 3.3 billion dollars. This surplus resulted mainly from the
wrapping up of investments in the Tamar natural gas reserves, and from the
commencement of gas production in the second quarter of the year. Production
Israel's economic developments in 2013
of natural gas decreased the consumption of diesel and fuel oil imported for the
generation of electricity. Furthermore, the large increase in natural gas reserve
investments – the lion’s share of which came from the purchase of imported
machinery and equipment – has ended.
Direct foreign investment by foreign residents in Israel reached about 12 billion
dollars in 2013. In contrast, Direct investment abroad by Israelis residents totaled 4.9
billion dollars. The continued high level of direct investments by foreigners relfects
the confidence of overseas investors in the Israeli economy over the long term.
BdiCoface Integrated Risk Index of Companies in the Market
BDiCoface Integrated Risk Index for 2013 stood at 6.19. The business risk of the
economy in 2013 did not register a significant change compared with last year
when the Integrated Risk Index of the economy stood at 6.18.
BdiCoface data for the end of 2013 show that about 13% of the companies
and businesses examined by the group’s economists, during the past year, were
ranked in the highest and most dangerous risk index (a risk index of 9 and 10).
These companies and businesses suffer from severe cash flow problems, Bank
of Israel restricted bank accounts, recurring instances of bounced checks, critical
or significant red lights, a sharp decline in turnover or in profitability, or sharp
and extreme shifts from profits to losses. The level of difficulty experienced by
these companies and businesses, in accordance with BdiCoface experience, is
high and threatens their continued business activities over the next year or two.
From amongst the thousands of companies and businesses examined during
the course of the past year by BdiCoface economists, some 28% were rated at
an above average level of risk (a risk index of 7 and 8). These companies and
businesses suffer frommedium level difficulties, which at this stage do not constitute
a real threat to their continued activities. However, is it recommended that their
situation be carefully monitored over the next fewmonths. Experience gathered
from recession years shows that the difficulties suffered by those companies and
businesses could be exacerbated in a relatively short period.
The rate of companies and businesses ranked at an average level of risk (a risk
index of 6) was about 29%. The rate of companies and businesses ranked at a
negligible level of risk (a risk index of 1 to 5) was about 30% this year.
Amongst the most important risks threatening the development of the economy
in the short term are: the length of time that the current conflict in Gaza (The
Protective Edge Campaign) continues, the deadlock in the peace talks with the
Palestinians, the geo-political uncertainty, mainly in Syria and in Iraq, which is
liable to spill over into Jordan, the uncertainty regarding the acceleration of
growth in the world, mainly against a backdrop of a weakening in growth in
major countries in Europe, a crisis in the Government coalition that could lead
to early elections, the housing market and the risk of a drastic decline in housing
prices that could impact on the financial sector.
Rate of Change in GDP – Israel compared with OECD Countries
(in %)
1,2,3,4,5,6 8,9,10,11,12,13,14,15,16,17,...480