the israeli economy 2016 · 2020. 4. 19. · us $ 11 billion: exports. us $ 103.8 billion: imports....

Challenges to the Israeli EconomyHerzliya Conference 2019

Prof. Rafi MelnickTiomkin School of Economics and Lauder School of Government

The Interdisciplinary Center (IDC)Herzliya

ולא במה שיש בא , אל תסתכל בקנקן

Literal translation

Do not look at the pitcher but what is insideor

What it actually means

Don't judge a book by its cover

Main Economic Indicators 2018

3Prof. Rafi Melnick - IDC Herzliya

3.3%GDP Growth

N.I.S 149.5 – US $ 41.4 ThousandsGDP per capita

0.8%Inflation

4.0%Unemployment77.5%Employment

US $ 11 BillionCurrent Account

US $ 103.8 BillionExports

US $ 102.2 BillionImports

3.8% of GDPGeneral Government Deficit

61.0% of GDPGeneral Government Debt

18.4% (Families-2017)Poverty (after taxes and transfers)

0.353 Gini (Families-2017)Inequality after taxes and transfers)

GDP Israel, USA, Euro Area and World 2000 – 2018(Rates of Growth, Percent)

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Israel USA Euro Area World4

Prof. Rafi Melnick - IDC Herzliya

Vulnerability Resilience

GDP and GDPB 2000 – 2018(percent change)

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

GDP GDP B i


Vulnerability Resilience

Second War In Lebanon

" עופרת יצוקה"“Cast Lead”

“ " צוק איתן “"Strong Cliff”

" עמוד ענן"“Pillar of Cloud”

At the World Financial Crisis 2007 A Growing Economy Credible Fiscal Policy Rule Balance Budget Declining Debt/GDP Ratio Ammunition for Monetary PolicyLow Inflation Flexible Inflation Targeting Policy Surplus in the Current Account Stable Financial Sector


The Source of Economic Resilience At the Next Crisis X X X X X Y Y Y Y

• Productivity and Growth• Fiscal Policy – Deficit and Debt• Infrastructure Investment• The Cost of Living – Housing Prices • Poverty and Inequality


Challenges (inside the pitcher)


Productivity and Growth

CONCLUSION• Without improvement in the rate of productivity the rate of growth

will be just over the population growth !!! 9Prof. Rafi Melnick - IDC Herzliya

Basic Output Growth AnalysisGDP Growth = Productivity Growth + Labor Input Growth

Labor Input Growth = Population Growth + Participation Growth

• Most GDP Growth in recent years is due to Labor input growth with disappointing productivity growth

• Labor input growth accelerated in recent years due to the rise in the rate of participation. The rate of participation is not expecting further growth.

Productivity Challenge – GDP per Hour Worked 2009-2018 (USD at constant 2010 ppp)

Prof. Rafi Melnick - IDC Herzliya 10

65.0 USD

36.7* USD

20.0

25.0

30.0

35.0

40.0

45.0

50.0

55.0

60.0

65.0

70.0

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Benchmark Countries Israel

Benchmark Countries: Austria, Belgium, Denmark, Finland, lreland, Netherlands, Sweden

24.2 USD

29.3 USD

* Estimate

The Sources of the Productivity Gap* in 2015

Total Factor Productivity

(5)

Human Capital(4)

Private Capital(3)

Public Capital ICT**

(2)

Public Capital Infrastructure

(1)

Productivity Gap(1)+(2)+(3)+(4)+(5)

4$5$8$1$8$26$

16%20%31%3%30%100%


*Calculations of the Aaron Institute for Economic Policy Research

** ICT - Information and Communications Technology

Employment Rate 2003 – 2018(percent, ages 25-64)

50.0

55.0

60.0

65.0

70.0

75.0

80.0

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018


GDP and GDPB 2000 – 2018(percent change)

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

GDP GDP Business


GDP Ratio Israel/Benchmark Countries 2013 – 2018 (Per capita GDP, ppp, percent)

65.00

66.00

67.00

68.00

69.00

70.00

71.00

72.00

73.00

2013 2014 2015 2016 2017 2018

Benchmark Countries: Austria, Belgium, Denmark, Finland, lreland, Netherlands, Sweden



Fiscal Policy – Deficit and Debt

General Government Expenditure 1995 – 2018(percent of GDP)


30.0

35.0

40.0

45.0

50.0

55.0

60.0

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Fiscal Rule Violation

General Government Deficit 2000 – 2018(percent of GDP)

0.0

1.0

2.0

3.0

4.0

5.0

6.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Big Recession Fiscal Rule Violation


Automatic Stabilizers

General Government Debt 2000 – 2018(percent of GDP)

50.0

55.0

60.0

65.0

70.0

75.0

80.0

85.0

90.0

95.0

100.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018



Infrastructure Investment

General Government Investment 1960-2018(percent of GDP)

0

1

2

3

4

5

6

7

8

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

The Lost Decade



Cost of Living – Housing Prices

Hosing Starts 2007:Q1 – 2019:Q1 (Seasonally adjusted at annual rates)

20,000

25,000

30,000

35,000

40,000

45,000

50,000

55,000

60,000

65,000

2007

-Q1

2007

-Q2

2007

-Q3

2007

-Q4

2008

-Q1

2008

-Q2

2008

-Q3

2008

-Q4

2009

-Q1

2009

-Q2

2009

-Q3

2009

-Q4

2010

-Q1

2010

-Q2

2010

-Q3

2010

-Q4

2011

-Q1

2011

-Q2

2011

-Q3

2011

-Q4

2012

-Q1

2012

-Q2

2012

-Q3

2012

-Q4

2013

-Q1

2013

-Q2

2013

-Q3

2013

-Q4

2014

-Q1

2014

-Q2

2014

-Q3

2014

-Q4

2015

-Q1

2015

-Q2

2015

-Q3

2015

-Q4

2016

-Q1

2016

-Q2

2016

-Q3

2016

-Q4

2017

-Q1

2017

-Q2

2017

-Q3

2017

-Q4

2018

-Q1

2018

-Q2

2018

-Q3

2018

-Q4

2019

-Q1



Poverty and Inequality

10

15

20

25

30

35

4019

79

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

After taxes and transfers Before taxes and transfers

Is this good enough?

Poverty Incidence in Israel 1979 – 2017(Families, percent)


0.0

5.0

10.0

15.0

20.0

Den

mar

k

Finl

and

Czec

hRe

publ

ic

Hung

ary

Net

herla

nds

Fran

ce

Nor

way

Aust

ria

Irela

nd

Swed

en

Ger

man

y

Belg

ium

New

Zea

land

Switz

erla

nd

Pola

nd

Portu

gal

Unite

dKi

ngdo

m

Aust

ralia

Italy

Kore

a

Cana

da

Gre

ece

Spai

n

Japa

n

Turk

ey

Unite

d St

ates

Isra

el

Poverty Incidence OECD Countries(Latest available data, Families, percent)


0.3

0.35

0.4

0.45

0.5

0.55

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

After taxes and transfers Before taxes and transfers

Inequality in Israel 1979-2017(Gini Coefficient))

26

Is this good enough?

Prof. Rafi Melnick - IDC Herzliya

0.00

0.10

0.20

0.30

0.40

0.50

Den

mar

k

Czec

hRe

publ

ic

Finl

and

Belg

ium

Nor

way

Aust

ria

Swed

en

Hung

ary

Ger

man

y

Pola

nd

Fran

ce

Kore

a

Switz

erla

nd

Irela

nd

Net

herla

nds

Cana

da

Italy

Japa

n

Portu

gal

Aust

ralia

Gre

ece

Spai

n

New

Zea

land

Unite

dKi

ngdo

m

Isra

el

Unite

d St

ates

Turk

ey

Inequality Incidence OECD Countries(Latest available data, Gini Coefficient)


Efficiency of Welfare Policy 1979 – 2017Percent of decline in poverty and inequality due to taxes and transfers

20

25

30

35

40

45

50

55

60

65

70

197919801981198219831984198519861987198819891990199119921993199419951996199719981999200020012002200320042005200620072008200920102011201220132014201520162017

Poverty Decline Inequality Decline Prof. Rafi Melnick - IDC Herzliya


The Social Challenge - Public and Private Consumption1995-2018 (At constant 2015 prices, percent of GDP)


10

20

30

40

50

60

70

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Public Private

• Productivity and Growth: Without improvement in the rate of productivity growth the per/capita income will remain stagnant

• Fiscal Policy – Deficit and Debt: There is an urgent need to change the fiscal rule and to regain control on the expenditure and the deficit

• Infrastructure and Private Sector Investment: Without a major increase in infrastructure investment (specially in transportation) and an increase in private sector investment the gaps vis-à-vis the western countries will remain

• The Cost of Living – Housing Prices: without additional supply of houses, prices will increase

• Poverty and Inequality: The trickle-down approach to poverty and inequality reduction is not sufficient to achieve significant improvements 30Prof. Rafi Melnick - IDC Herzliya

Summary

the israeli economy 2016 · 2020. 4. 19. · us $ 11 billion: exports. us $ 103.8 billion: imports....

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