S&P sees "healthy" 3.5-4% growth for Israel in 2008
S&P gives Israel a "positive" outlook on its foreign currency rating and a "stable" local currency outlook.
Michal Yoshai and Globe's correspondent 13 Jan 08 09:23
Standard & Poor’s Ratings Services gives Israel a "positive" outlook on its foreign currency rating and a "stable" outlook on the local currency rating. S&P cites "the expectation that government debt reduction will remain the key policy priority." On teh Israeli economy, S&P says, "The geopolitical environment will remain difficult, but the economy and public finances should be able to absorb most conceivable escalation scenarios."
S&P adds that as the macroeconomic situation improves, there will be a smaller distinction between the foreign currency and local currency ratings, with both ratings constrained in large part by the same geopolitical factors.
S&P notes, "Any material progress toward a settlement of key security issues would have a favorable impact on the ratings through positive repercussions on domestic stability, economic growth, and investor confidence. Conversely, any significant setback on fiscal consolidation or a worsening of the security situation could increase downward ratings pressure."
On more purely economic considerations, the S&P report says, "The ratings on the State of Israel are supported by its prosperous and resilient economy, robust external indicators, and a strong political commitment to long-term fiscal consolidation. The above-peer general government debt burden and geopolitical risks are the main constraining factors. Israel’s economy continued to expand in 2007, with real GDP growth reaching 5.3%, on the back of strong export performance and dynamic private consumption.
"Such a quick rebound after the conflict in Lebanon in August 2006 demonstrates the economy’s ability to withstand severe shocks. External liquidity also remained robust, bolstered by the current account surplus estimated at 3.6% of GDP. Although the expansion is likely to be hit by a slowdown in world trade in 2008, S&P projects real GDP to grow by a relatively healthy 3.5% -4%, thanks to sustained demand for Israel’s knowledge -intensive goods and services. The current account is forecast to record small surpluses in the medium term.
"Fiscal consolidation intensified in 2007, and the central government deficit is set to close to balance, against a budgeted deficit of 2.9% of GDP. The general government debt burden continued its downward trend to 82% of GDP at year-end 2007, from 102% in 2003, although this ratio is still more than twice as high as the 34% median for the ‘A’ rating category, hampering budgetary flexibility that Israel needs more than its peers to face the costs of unexpected security developments.
"However, unlike its similarly rated peers, Israel has additional borrowing flexibility due to the loan guarantee program by the US, its key ally. The recently passed 2008 budget targets a deficit of 1.6%, which should permit further gradual debt reduction."
S&P adds, "The main risk to the ratings on Israel will continue to derive from its security situation, which could worsen if Iran were to be seen as continuing to develop a nuclear fuel program. There is a substantial risk that any eventual military conflict would embroil Israel. The impact on the Israeli economy would almost certainly be greater and longer lasting than the war with Hezbollah in mid-2006. However, Iran’s capacity to cause direct damage to Israel would likely be severely depleted in any first strike."
In late November 2007, S&P raised long-term foreign currency sovereign credit rating for Israel to "A" from "A-", the long-term local currency rating to "AA" from "A+", and the short-term local currency rating to "A-1+" from "A-1". It reiterated its short-term foreign currency rating at "A-1".
Published by Globes [online], Israel business news - www.globes-online.com - on January 13, 2008
