Provost, Interdisciplinary Center (IDC) Herzliya · Source: IMF, WEO Database, last update Oct 1...
56
Prof. Rafi Melnick Provost, Interdisciplinary Center (IDC) Herzliya The Rothschild Caesarea Center Conference January 2011 THE ISRAELI ECONOMY 2011
Transcript of Provost, Interdisciplinary Center (IDC) Herzliya · Source: IMF, WEO Database, last update Oct 1...
Prof. Rafi Melnick
Provost, Interdisciplinary Center (IDC)
Herzliya
The Rothschild Caesarea Center Conference
January 2011
THE ISRAELI ECONOMY 2011
January 2001Prof. Rafi Melnick2
GDP - Forecast and Reality 2007 - 2010
2010200920082007Year*
3.10.73.94.6Forecast
4.50.84.25.3Reality**
* The Forecast was given in the month of November of the previous year
** Latest CBS update December 2010
January 2001Prof. Rafi Melnick3
0
2
4
6
8
2007 2008 2009 2010
Forecast Actual
GDP - Forecast and Reality 2007 - 2010
January 2001Prof. Rafi Melnick4
1Identifying Business Cycles
in the Israeli Economy
ThThThThe Present Cyclical Positione Present Cyclical Positione Present Cyclical Positione Present Cyclical Position
January 2001Prof. Rafi Melnick5
The Melnick State of the Economy IndexMain Indicators
• Industrial Production
• Revenue in Commerce and Services
• Import Index
• Employee Posts in the Business Sector
January 2001Prof. Rafi Melnick6
Industrial Production 1995 - 2010(2004 = 100)
70
80
90
100
110
120
130
140J
an
-95
Ju
l-9
5
Ja
n-9
6
Ju
l-9
6
Ja
n-9
7
Ju
l-9
7
Ja
n-9
8
Ju
l-9
8
Ja
n-9
9
Ju
l-9
9
Ja
n-0
0
Ju
l-0
0
Ja
n-0
1
Ju
l-0
1
Ja
n-0
2
Ju
l-0
2
Ja
n-0
3
Ju
l-0
3
Ja
n-0
4
Ju
l-0
4
Ja
n-0
5
Ju
l-0
5
Ja
n-0
6
Ju
l-0
6
Ja
n-0
7
Ju
l-0
7
Ja
n-0
8
Ju
l-0
8
Ja
n-0
9
Ju
l-0
9
Ja
n-1
0
Ju
l-1
0
Ja
n-1
1
January 2001Prof. Rafi Melnick7
Revenue in Commerce and Services ’95 - ’10(2004 = 100)
60
70
80
90
100
110
120
130
140J
an
-95
Ju
l-9
5
Ja
n-9
6
Ju
l-9
6
Ja
n-9
7
Ju
l-9
7
Ja
n-9
8
Ju
l-9
8
Ja
n-9
9
Ju
l-9
9
Ja
n-0
0
Ju
l-0
0
Ja
n-0
1
Ju
l-0
1
Ja
n-0
2
Ju
l-0
2
Ja
n-0
3
Ju
l-0
3
Ja
n-0
4
Ju
l-0
4
Ja
n-0
5
Ju
l-0
5
Ja
n-0
6
Ju
l-0
6
Ja
n-0
7
Ju
l-0
7
Ja
n-0
8
Ju
l-0
8
Ja
n-0
9
Ju
l-0
9
Ja
n-1
0
Ju
l-1
0
Ja
n-1
1
January 2001Prof. Rafi Melnick8
Import Index 1995 - 2010(1994 = 100)
100
110
120
130
140
150
160
170
180
190
200
210J
an
-95
Ju
l-9
5
Ja
n-9
6
Ju
l-9
6
Ja
n-9
7
Ju
l-9
7
Ja
n-9
8
Ju
l-9
8
Ja
n-9
9
Ju
l-9
9
Ja
n-0
0
Ju
l-0
0
Ja
n-0
1
Ju
l-0
1
Ja
n-0
2
Ju
l-0
2
Ja
n-0
3
Ju
l-0
3
Ja
n-0
4
Ju
l-0
4
Ja
n-0
5
Ju
l-0
5
Ja
n-0
6
Ju
l-0
6
Ja
n-0
7
Ju
l-0
7
Ja
n-0
8
Ju
l-0
8
Ja
n-0
9
Ju
l-0
9
Ja
n-1
0
Ju
l-1
0
Ja
n-1
1
January 2001Prof. Rafi Melnick9
Employee Posts in the Business Sector ’95 - ’10
1,300
1,400
1,500
1,600
1,700
1,800
1,900
2,000
2,100Jan
-95
Ju
l-95
Jan
-96
Ju
l-96
Jan
-97
Ju
l-97
Jan
-98
Ju
l-98
Jan
-99
Ju
l-99
Jan
-00
Ju
l-00
Jan
-01
Ju
l-01
Jan
-02
Ju
l-02
Jan
-03
Ju
l-03
Jan
-04
Ju
l-04
Jan
-05
Ju
l-05
Jan
-06
Ju
l-06
Jan
-07
Ju
l-07
Jan
-08
Ju
l-08
Jan
-09
Ju
l-09
Jan
-10
Ju
l-10
Jan
-11
January 2001Prof. Rafi Melnick10
The Melnick Index 1994 - 2010(2004 = 100)
70
80
90
100
110
120
130
140J
an
-94
Ju
l-9
4
Ja
n-9
5
Ju
l-9
5
Ja
n-9
6
Ju
l-9
6
Ja
n-9
7
Ju
l-9
7
Ja
n-9
8
Ju
l-9
8
Ja
n-9
9
Ju
l-9
9
Ja
n-0
0
Ju
l-0
0
Ja
n-0
1
Ju
l-0
1
Ja
n-0
2
Ju
l-0
2
Ja
n-0
3
Ju
l-0
3
Ja
n-0
4
Ju
l-0
4
Ja
n-0
5
Ju
l-0
5
Ja
n-0
6
Ju
l-0
6
Ja
n-0
7
Ju
l-0
7
Ja
n-0
8
Ju
l-0
8
Ja
n-0
9
Ju
l-0
9
Ja
n-1
0
Ju
l-1
0
Ja
n-1
1
The contraction recession
March 1996
The big crisis
October 2000
The high-tech bubble
May 1999
Growth and Recovery
August 2003
The World financial crisis
May 2008
The present cycle
May 2009
January 2001Prof. Rafi Melnick11
2Recent Economic Policy
January 2001Prof. Rafi Melnick12
General Government Expenditure 2000 - 2010(Percent of GDP)
30
35
40
45
50
55
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010*
January 2001Prof. Rafi Melnick13
General Government Deficit 2000 - 2010(Percent of GDP)
0
1
2
3
4
5
6
7
8
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010*
January 2001Prof. Rafi Melnick14
Public Debt 2000 - 2010(Percent of GDP, Gross Debt)
60
65
70
75
80
85
90
95
100
105
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010*
January 2001Prof. Rafi Melnick15
Bank of Israel Interest Rate 2000 - 2010(Nominal and Real - Percent)
-2
0
2
4
6
8
10
12
Jan-0
0
Jul-00
Jan-0
1
Jul-01
Jan-0
2
Jul-02
Jan-0
3
Jul-03
Jan-0
4
Jul-04
Jan-0
5
Jul-05
Jan-0
6
Jul-06
Jan-0
7
Jul-07
Jan-0
8
Jul-08
Jan-0
9
Jul-09
Jan-1
0
Jul-10
Jan-1
1
Jul-11
Jan-1
2
Nominal Real
January 2001Prof. Rafi Melnick16
The Dollar and Euro Exchange Rate 1999 - 2010
2
3
4
5
6
7
8
Jan-9
9
Jul-99
Jan-0
0
Jul-00
Jan-0
1
Jul-01
Jan-0
2
Jul-02
Jan-0
3
Jul-03
Jan-0
4
Jul-04
Jan-0
5
Jul-05
Jan-0
6
Jul-06
Jan-0
7
Jul-07
Jan-0
8
Jul-08
Jan-0
9
Jul-09
Jan-1
0
Jul-10
Jan-1
1
Euro Dollar
January 2001Prof. Rafi Melnick17
International Reserves 2010(In US dollars, millions end of the period)
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000Jan-0
8
Apr-
08
Jul-08
Oct-
08
Jan-0
9
Apr-
09
Jul-09
Oct-
09
Jan-1
0
Apr-
10
Jul-10
Oct-
10
Jan-1
1
January 2001Prof. Rafi Melnick18
3 Latest Economic Developments
January 2001Prof. Rafi Melnick19
GDP and Business GDP 2000 - 2010(Rates of Growth, Percent)
-4
-2
0
2
4
6
8
10
12
14
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010*
GDP GDP Business
January 2001Prof. Rafi Melnick20
Rate of Inflation 2000 - 2010(CPI, Percent)
-3
-2
-1
0
1
2
3
4
5
6
7
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010*
January 2001Prof. Rafi Melnick21
Unemployment Trend 1996 – 2010(Percent)
4
6
8
10
12
Jan-9
6
Jul-96
Jan-9
7
Jul-97
Jan-9
8
Jul-98
Jan-9
9
Jul-99
Jan-0
0
Jul-00
Jan-0
1
Jul-01
Jan-0
2
Jul-02
Jan-0
3
Jul-03
Jan-0
4
Jul-04
Jan-0
5
Jul-05
Jan-0
6
Jul-06
Jan-0
7
Jul-07
Jan-0
8
Jul-08
Jan-0
9
Jul-09
Jan-1
0
Jul-10
Jan-1
1
January 2001Prof. Rafi Melnick22
Labor Force Participation 2000 - 2010(Percent)
52
53
54
55
56
57
58
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010*
January 2001Prof. Rafi Melnick23
Current Account 2000 – 2010(Percent of GDP)
-3
-2
-1
0
1
2
3
4
5
6
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010*
January 2001Prof. Rafi Melnick24
Consumer Price Index 2000 – 2010(Percent change in previous 12 months)
-3
-2
-1
0
1
2
3
4
5
6
7
Ja
n-0
0
Ju
l-0
0
Ja
n-0
1
Ju
l-0
1
Ja
n-0
2
Ju
l-0
2
Ja
n-0
3
Ju
l-0
3
Ja
n-0
4
Ju
l-0
4
Ja
n-0
5
Ju
l-0
5
Ja
n-0
6
Ju
l-0
6
Ja
n-0
7
Ju
l-0
7
Ja
n-0
8
Ju
l-0
8
Ja
n-0
9
Ju
l-0
9
Ja
n-1
0
Ju
l-1
0
Ja
n-1
1
January 2001Prof. Rafi Melnick25
Relative Price of Housing 1961 - 2010(1961=100)
January 2001Prof. Rafi Melnick26
3The World Economy
Basic Assumptions
January 2001Prof. Rafi Melnick27
Latest IMF GDP and World Trade Forecasts2009 - 2011 (WEO - October 2010)
2.5
4.82.7
7.1
12.5
4.22.2
6.4 7.0
-12-3.2-0.6
-14-12-10
-8-6-4-202468
101214
World Output Advanced
Economies
Developing and
Emerging Markets
World Trade
2009 2010 2011 Source :World Economic Outlook
January 2001Prof. Rafi Melnick28
-12.0
12.5
7.0
-12
-8
-4
0
4
8
12
16
2003 2004 2005 2006 2007 2008 2009 2010* 2011*
*Forecast
World Trade Volume 2003 - 2011(Annual Percent Change, IMF WEO October 2010)
January 2001Prof. Rafi Melnick29
Export Shares (excl. Diamond, percent)
0
5
10
15
20
25
30
35
40
USA Europe Asia
Jan-Oct 2009 Jan-Oct 2010
January 2001Prof. Rafi Melnick30
Export Shares – Growing Countries(excl. Diamond, percent)
0
1
2
3
4
5
China India Brazil
Jan-Oct 2009 Jan-Oct 2010
January 2001Prof. Rafi Melnick31
7.0
-12.0
12.5
6.9
-12.5
12.0
-14
-10
-6
-2
2
6
10
14
18
22
2003 2004 2005 2006 2007 2008 2009 2010* 2011*
WT - IMF WEO October 2010 Export *Forecast
World Trade Volume and Exports 2003 - 2011(Annual Percent Change)
January 2001Prof. Rafi Melnick32
2.32.8
1.7
2.6
-2.6
1.5
-5.2
1.5
-4.1
-6
-4
-2
0
2
4
2003 2004 2005 2006 2007 2008 2009 2010* 2011*
USA Japan Euro Area* Forecast
Real GDP Growth 2003 - 2011(Annual Percent Change, IMF WEO October 2010)
January 2001Prof. Rafi Melnick33
110.7
99.392.7
87.0
89.384.1
40
60
80
100
120
2004 2005 2006 2007 2008 2009 2010* 2011* 2015*
USA Euro Area* Forecast
General Government Gross Debt ‘03 – ‘11(Percent of GDP, IMF WEO October 2010)
January 2001Prof. Rafi Melnick34
-9
-6
-3
0
3
6
9
12
2003 2004 2005 2006 2007 2008 2009 2010*
USA China* Forecast
Current Account 2003-2011(Percent of GDP, IMF WEO October 2010)
January 2001Prof. Rafi Melnick35
US$ billions, 2011
Current Account of Balance of Payments
----$400$400$400$400
----$80$80$80$80
----$21$21$21$21
$23$23$23$23
$189$189$189$189
$582$582$582$582
-600
-300
0
300
600
United States Latin America and the
Caribbean
Sub-Saharan Africa
European Union Middle East, N. Africa, & Russia
Asia
(U.S. dollars, bill.)
Of Which:Of Which:Of Which:Of Which:China $325China $325China $325China $325Japan $133Japan $133Japan $133Japan $133
Source: IMF, last update Oct 01 2010, WEO (2011 Forecast) Source: IMF, last update Oct 01 2010, WEO (2011 Forecast) Source: IMF, last update Oct 01 2010, WEO (2011 Forecast) Source: IMF, last update Oct 01 2010, WEO (2011 Forecast)
J. Frenkel: Presentation at IDC Economic Workshop 2010
January 2001Prof. Rafi Melnick36
-9
-6
-3
0
3
2004 2005 2006 2007 2008 2009 2010* 2011*
* Forecast
US Fiscal Structural Balance 2003-2011(Percent of GDP, IMF WEO October 2010)
January 2001Prof. Rafi Melnick37
Fiscal Positions:General Government Net Lending/Borrowing
-14
-12
-10
-8
-6
-4
-2
0
2
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
(Percent of GDP)
IMF Forecasts United States
Euro Area Japan
Japan, Japan, Japan, Japan,
2011: 2011: 2011: 2011:
----8 .9%8.9%8.9%8.9%
Euro Area, Euro Area, Euro Area, Euro Area,
2011: 2011: 2011: 2011:
----5 .1%5.1%5.1%5.1%
US, 2011: US, 2011: US, 2011: US, 2011:
----9 .7%9.7%9.7%9.7%
Source: IMF, WEO Database, last update Oct 1 2010, WEO (2009 Estimate, 2010 & 2011 Forecast) Source: IMF, WEO Database, last update Oct 1 2010, WEO (2009 Estimate, 2010 & 2011 Forecast) Source: IMF, WEO Database, last update Oct 1 2010, WEO (2009 Estimate, 2010 & 2011 Forecast) Source: IMF, WEO Database, last update Oct 1 2010, WEO (2009 Estimate, 2010 & 2011 Forecast)
J. Frenkel: Presentation at IDC Economic Workshop 2010
January 2001Prof. Rafi Melnick38
Real GDP Growth 2003-2011(Annual Percent Change, IMF WEO October 2010)
9.110.5
9.68.4
9.7
5.7
4.1
7.5
-0.2
-2
0
2
4
6
8
10
12
14
16
2003 2004 2005 2006 2007 2008 2009 2010* 2011*
China India Brazil* Forecast
January 2001Prof. Rafi Melnick39
Inflation 2003-2011(CPI, Annual Percent Change, IMF WEO October 2010)
1.4
-1.4
0.3
1.6 1.5
-0.4
1.0
-0.3-1.0
-2
-1
0
1
2
3
4
5
2003 2004 2005 2006 2007 2008 2009 2010* 2011*
USA Japan Euro Area * Forecast
January 2001Prof. Rafi Melnick40
Inflation 2003-2011(CPI, Annual Percent Change, IMF WEO October 2010)
3.52.7
10.9
13.2
6.7
-0.7
4.65.04.9
-2
0
2
4
6
8
10
12
14
16
2003 2004 2005 2006 2007 2008 2009 2010* 2011*
China India Brazil * Forecast
January 2001Prof. Rafi Melnick41
4Economic Policy
Fiscal and Monetary
January 2001Prof. Rafi Melnick42
Fiscal Policy 2009-2011
� The 2011-2012 budget was approved by the Knesset and it will not be changed
� The automatic stabilizers will continue to provide fiscal impulse and will lead to a balanced budget
� 3.5 percent expected government deficit in 2011 as percent of GDP due to improvement in tax collection
January 2001Prof. Rafi Melnick43
Monetary Policy 2011
�Monetary policy will continue to be
relatively expansionary but less than in 2010
� The Bank of Israel will continue raising the
rate of interest paralleled with the real
economic recovery
� The dilemma of a strong Sequel and the
need to an upward adjustment of the rate
of interest will continue to influence interest
rate setting
� The Bank of Israel will continue to support
the Shekel
January 2001Prof. Rafi Melnick44
Monetary Interest Rate 2000-2010(Percent)
0
2
4
6
8
10
12
Jan-0
0
Jul-00
Jan-0
1
Jul-01
Jan-0
2
Jul-02
Jan-0
3
Jul-03
Jan-0
4
Jul-04
Jan-0
5
Jul-05
Jan-0
6
Jul-06
Jan-0
7
Jul-07
Jan-0
8
Jul-08
Jan-0
9
Jul-09
Jan-1
0
Jul-10
Jan-1
1
Bank of Israel Federal Fund USA
January 2001Prof. Rafi Melnick45
10-Year Bonds Yields Israel – US 2001-2010(Percent)
0
2
4
6
8
10
12
May-0
1
Nov-0
1
May-0
2
Nov-0
2
May-0
3
Nov-0
3
May-0
4
Nov-0
4
May-0
5
Nov-0
5
May-0
6
Nov-0
6
May-0
7
Nov-0
7
May-0
8
Nov-0
8
May-0
9
Nov-0
9
May-1
0
Nov-1
0
10-Year Shachar 10-Year Treasury
January 2001Prof. Rafi Melnick46
5Macroeconomic Forecast 2011
January 2001Prof. Rafi Melnick47
GDP and GDPB Forecast 2011(Rates of Growth, Percent)
4.24.9
-4
-2
0
2
4
6
8
10
12
14
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010* 2011*
GDP GDP Business * Forecast
January 2001Prof. Rafi Melnick48
Rate of Inflation Forecast 2011(CPI, Percent)
2.8
-3
-2
-1
0
1
2
3
4
5
6
7
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010* 2011*
January 2001Prof. Rafi Melnick49
Unemployment Forecast 2011(Percent)
5.9
5
6
7
8
9
10
11
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010* 2011*
* Forecast
January 2001Prof. Rafi Melnick50
Current Account Forecast 2011(Percent of GDP)
3.8
-3
-2
-1
0
1
2
3
4
5
6
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010* 2011*
* Forecast
January 2001Prof. Rafi Melnick51
Uses and Resources Forecast 2011(Rates of Growth, Percent)
C.B.S.
2010
OECD
2011
Treasury
2011
B.o.I.
2011Melnick
2011
Resources
GDP 4.5 4.0 3.8 3.8 4.2
Business GDP 5.3 4.5 4.9
Civilian Imports 11.4 4.0 9.1 8.2
Uses of Resources
Private
Consumption4.7 3.9 3.0 3.6 4.9
Government
Consumption3.7 1.7 1.0 2.7
Fixed Capital
Formation9.9 6.2 4.6 5.7 7.0
Exports 10.2 6.1 5.8 6.9
January 2001Prof. Rafi Melnick52
Bank of Israel Interest Rate Forecast 2011
-2
0
2
4
6
8
10
12Jan-0
0
Jul-00
Jan-0
1
Jul-01
Jan-0
2
Jul-02
Jan-0
3
Jul-03
Jan-0
4
Jul-04
Jan-0
5
Jul-05
Jan-0
6
Jul-06
Jan-0
7
Jul-07
Jan-0
8
Jul-08
Jan-0
9
Jul-09
Jan-1
0
Jul-10
Jan-1
1
Jul-11
Jan-1
2
2.75
January 2001Prof. Rafi Melnick53
Inflation and Dollar Rate Forecast 2011(Percent change in previous 12 months)
-21
-18
-15
-12
-9
-6
-3
0
3
6
9
12
15
18
21
Ja
n-0
5
Ap
r-0
5
Ju
l-0
5
Oc
t-0
5
Ja
n-0
6
Ap
r-0
6
Ju
l-0
6
Oc
t-0
6
Ja
n-0
7
Ap
r-0
7
Ju
l-0
7
Oc
t-0
7
Ja
n-0
8
Ap
r-0
8
Ju
l-0
8
Oc
t-0
8
Ja
n-0
9
Ap
r-0
9
Ju
l-0
9
Oc
t-0
9
Ja
n-1
0
Ap
r-1
0
Ju
l-1
0
Oc
t-1
0
Ja
n-1
1
Ap
r-1
1
Ju
l-1
1
Oc
t-1
1
CPI CPI forecast Lower limit Upper limit Dollar Dollar forecast
CPI inflation in 2011 2.8 percent
Dollar exchange rate 3.68 at December 2011
January 2001Prof. Rafi Melnick54
B.o.I Rate and Yields to Makam and Shahar Forecast 2011
0
1
2
3
4
5
6
7
8
Jan-0
5
Jul-05
Jan-0
6
Jul-06
Jan-0
7
Jul-07
Jan-0
8
Jul-08
Jan-0
9
Jul-09
Jan-1
0
Jul-10
Jan-1
1
BoI Rate BoI Rate forecast Makam 12 months
Makam forecast Shahr 10 Years Shahar forecast
2.25
2.6
5.0
January 2001Prof. Rafi Melnick55
Real Yield on Indexed Government Bonds Forecast 2011 (5 and 10 years maturity, percent)
0
1
2
3
4
5
6
7
Jan-0
5
Jul-05
Jan-0
6
Jul-06
Jan-0
7
Jul-07
Jan-0
8
Jul-08
Jan-0
9
Jul-09
Jan-1
0
Jul-10
Jan-1
1
5 year 5 year forecast 10 year 10 year forecast
January 2001Prof. Rafi Melnick56
Stock Market as Leading Indicator ‘97 – ‘10
200
400
600
800
1000
1200
1400
1600Jul-97
Jul-98
Jul-99
Jul-00
Jul-01
Jul-02
Jul-03
Jul-04
Jul-05
Jul-06
Jul-07
Jul-08
Jul-09
Jul-10
70
80
90
100
110
120
130
140
TA 100 Melnick Index
