Israel Business Forecast Report Q4 2012

Executive Summary
Core Views
Major Forecast Changes
Key Risks To Outlook

Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Ratings
Foreign Politics
Is An Israeli Attack On Iran Imminent?
We retain our view that neither the US nor Israel will attack Irans nuclear facilities before the end of 2012 The US remains opposed to
military action, and there are serious doubts within Israel over the wisdom of a solo Israeli strike Nevertheless, we cannot rule out an
Israeli attack indefinitely , especially if moderates fail to regain political momentum in Irans June 2013 presidential election
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Will Long-Lasting Peace Be Achieved?
Over the next decade, Israel will continue to face external security threats from militant groups Hamas and Iran-backed Hizbullah
Downside risks to stability stem from the potential for renewed conflict with Hizbullah across Israels northern border, although any
peace settlement with the Palestinians would pose upside risks

Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
Growth To Slow Heading Into 2013
Israels economy will slow in H212 and early 2013 , as the government is set to rein in spending, while leading indicator data paint a
relatively negative picture for private consumption and fixed investment As a result, we have lowered down our forecasts for real GDP
to grow 2 8% and 3 3% in 2012 and 2013 respectively, from 2 9% and 3 5% previously
TABLE: ECONOMIC ACTIVITY
Monetary Policy
Further Rate Cuts Ahead
Our core view continues to see the Bank of Israel cut ting interest rates to 2 00% before the end of 2012, as consumer price inflation will
remain subdued, while economic growth will struggle amid the weaker external climate However, the bank will likely keep interest rates
unchanged at its next policy meeting , particularly given elevated uncertainty surrounding the trajectory of the eurozone crisis
TABLE: MONETARY POLICY
Fiscal Policy
Further Austerity Measures Unlikely
Despite the recent approval of a host of austerity measures, we forecast Israels budget deficit coming in at 3 5% and 3 8% of GDP in
2012 and 2013 respectively, up from 3 2% in 2011 T he measures will not be sufficient to lower the deficit considerably this year, while
political infighting will likely delay cuts in 2013
TABLE: FISCAL POLICY
Balance Of Payments
External Dynamics Augur For Shekel Weakness
We project Israels current account to come in surplus to the tune of 0 1% and 0 6% of GDP in 2012 and 2013 respectively, down from
0 8% in 2011 The countrys current account position will deteriorate as a result of slowing export growth, while financial account inflows
will also remain muted in 2012 As a result, we reaffirm our bearish medium-term view on the shekel
TABLE: CURRENT ACCOUNT
Banking Sector
Entering A Rough Patch
Key Sector Outlook
Housing Market In Better Shape
Fears that the Israeli housing market could experience a hard landing this year look to be overblown

Chapter 3: 10-Year Forecast
The Israeli Economy To 2021
Long-Term Outlook Slow But Steady
We are forecasting steady, if unspectacular, growth for the increasingly developed Israeli economy over the long term As ever, political
risks pose downside risks to our GDP growth forecasts
TABLE: LONG-TERM MACROECONOMIC FORECASTS

Chapter 4: Business Environment
SWOT Analysis
BMI Business Environment Risk Ratings
Business Environment Outlook
Institutions
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS
TABLE: BMI LEGAL FRAMEWORK RATING
Infrastructure
TABLE: LABOUR FORCE QUALITY
TABLE: MIDDLE EAST AND AFRICA – ANNUAL FDI INFLOWS
Market Orientation
TABLE: TRADE AND INVESTMENT RATINGS
TABLE: TOP EXPORT DESTINATIONS
Operational Risk

Chapter 5: Key Sectors
Pharmaceuticals
TABLE: PHARMACEUTICAL SALES, 2008-2016
TABLE: PRESCRIPTION DRUG SALES, 2008-2016
TABLE: PATENTED DRUG SALES, 2008-2016
TABLE: OTC MEDICINE SALES, 2008-2016
TABLE: GENERIC DRUG SALES, 2008-2016
TABLE: MEDICAL DEVICE SALES, 2008-2016
Telecommunications
TABLE: INTERNET DATA AND FORECASTS, 2009-2016
TABLE: FIXED-LINE DATA AND FORECASTS, 2009-2016
TABLE: TELECOMS SECTOR — ARPU — HISTORICAL DATA & FORECASTS
TABLE: MOBILE DATA AND FORECASTS, 2009-2016
Other Key Sectors
TABLE: AUTOS SECTOR KEY INDICATORS
TABLE: INFRASTRUCTURE SECTOR KEY INDICATORS
TABLE: DEFENCE AND SECURITY SECTOR KEY INDICATORS
TABLE: FOOD AND DRINK SECTOR KEY INDICATORS
TABLE: OIL AND GAS SECTOR KEY INDICATORS
TABLE: FREIGHT KEY INDICATORS

Chapter 6: BMI Global Assumptions
Global Outlook
A Pivotal Autumn Approaches
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES REAL GDP GROWTH FORECAST
TABLE: REAL GDP GROWTH CONSENSUS FORECASTS
TABLE: EMERGING MARKETS REAL GDP GROWTH FORECAST 45