ANDBANK RESEARCH Global Economics & Markets
Alex FustĂŠ Chief Economist alex.fuste@andbank.com +376 881 248
Working paper - 80 Interesting markets to invest. Israel – A preliminary assessment October , 2014
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Activity - We are witnessing an evident slowdown in the pace of activity in Israel, but this is probably not idiosyncratic and rather may be due to the slowdown seen in the global economy, specially in China and Europe. • In Year on Year terms, the Gross Domestic Product (GDP) in Israel expanded 2.24% in the second quarter of 2014 over the same quarter of the previous year, well below the 3.88% average in the 1996-2014 period.
Israel % Change in GDP (Y/Y)
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Wealth (in per capita terms) at all time highs! • The Gross Domestic Product per capita in Israel was last recorded at 31.028 US dollars in 2013 when adjusted by purchasing power parity (PPP), being now at its all time high. This is equivalent to 175 percent of the world's average. • GDP per capita PPP in Israel is currently well above its long term average of 25.032 USD from 1990 until 2013.
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Labour has deteriorated slightly but is still at healthy levels • Unemployment Rate in Israel increased to 6.40% in August of 2014 from 6.20% in July. • Despite this deterioration, unemployment is still below its long term average of 7.83% (period 1992 – 2014). The all time high in unemployment rate was at 11.40% in March of 1992. The record low was 5.40% (December of 2011).
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Inflation is near its all time low
• The inflation rate in Israel stands at an astonishing low 0% in August of 2014.
• Inflation Rate in Israel averaged 31.09% from 1952 until 2014, reaching an all time high of 486.23% in November of 1984 and a record low of -2.74% in March of 2004.
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Government Debt has reached its all time low! • Israel recorded a Government Debt to GDP of 67.40% of the country's Gross Domestic Product in 2013, and is now at its all time low. • Debt ratio is now well bellow its long term average of 83.24% for the 1996 – 2013 period, and reached an all time high of 96.70% in 1998.
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Government Budget is at reasonable levels makes the country’s credit metrics to remain relatively healthy • Israel recorded a Government Budget deficit equal to 3.15% of the country's Gross Domestic Product in 2013, still below its long term average of -4.56% of GDP from 1980 until 2013. • Israel recorded an all time high Government Budget of 3.90% surplus in 1986 and a record low of -19% deficit in 1981.
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External Position: An enviable position that makes the country less vulnerable to external shocks.
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Rating agencies see no major risks
Moody’s Credit Rating
Standar & Poors Credit Rating
AA-
A+
A1
A+
2 7 Nov 0 7 Rati ng Date
A2
2 M ay 1 3
1 7 Apr 08 Rati ng Date
Fitch Credit Rating A
Unchange d
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This good financial position, and the low inflation, is being reflected in an ever cheaper financing conditions for the government
Andbank, Factset Research Systems
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‌ better financing conditions in the domestic markets, but also in the international financial markets
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Israel - CDS 5 Yr
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This is being reflected in a broad inflow of capital in search of areas with better projections‌ • Capital Flows in Israel stands at 5.315 USD Million in the first quarter of 2014 (down from the all time high of 6.971 USD Million seen in the fourth quarter of 2013) but clearly far above of its long term average of 491 USD Million from 1980 until 2014.
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… and more importantly, most of these Capital Flows are in the form of Foreign Direct Investments… • Foreign Direct Investment in Israel stood at 4.075 USD Million in 2012 (slightly down from the 4.286 USD Million of 2011) but near its all time high seen in 2008, and still well above its long term average of 3.535 USD Million in the 2006 – 2012 period.
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… what in turn, translates into a high level of Gross Fixed Capital Formation, which should help to ensure a good positioning of this economy in the future. • Gross Fixed Capital Formation in Israel has lost momentum (from 46.993 ILS Million in 1Q14 to 46.735 ILS Million in 2Q14), but still high under historical standards. • Average in the 1995-20014 period is of 30.086 ILS Million from 1995 until 2014, reaching an all time high of 49.851 ILS Million in the third quarter of 2013. Source: Central Bureau Of Statistics, Israel.
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In summary, and according to the Bank of Israel, the overall state of the economy would be at its best today, although the pace of improvement has lost its momentum. 115
GENERAL STATE OF THE ECONOMY - ISRAEL
110 105 100 95 90 85 80 75 70 65
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Business Survey, State Of The Economy Composite Index, Level, 2011=100, Index - Israel Andbank, Bank of Israel
ŠFactSet Research Systems
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Israel – Conclusions 1. We are witnessing an evident slowdown in the pace of activity in Israel, but this is probably not idiosyncratic and rather may be due to the slowdown seen in the global economy, specially in China and Europe. 2. Wealth (in per capita terms) at all time highs! 3. Labour has deteriorated slightly but still at healthy levels. 4. Government Debt has reached its all time low and government budget remains at reasonable levels, making the country’s credit metrics to remain relatively healthy. 5. An enviable external position that makes the country less vulnerable to external shocks. 6. Rating agencies see no major risks. 7. This good financial position, and the low inflation, is being reflected in an ever cheaper financing conditions for the government… 8. … better financing conditions in the domestic markets, but also in the international financial markets. 9. This is being reflected in a broad inflow of capital in search of areas with better projections… 10. … and more importantly, most of these Capital Flows are in the form of Foreign Direct Investments … 11.… what in turn, translates into a high level of Gross Fixed Capital Formation, which should help to ensure a good positioning of this economy in the future. 12.In summary, and according to the Bank of Israel, the overall state of the economy would be at its best today, although the pace of improvement has lost its momentum.
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