Fitch changes Israel's outlook to Positive

Fitch: Israel's net external creditor position, high per capita income exceed those of many higher-rated countries.

Fitch Ratings has today changed the outlook on Israel's foreign and local currency Issuer Default ratings (IDR) to Positive from Stable. The ratings are affirmed at foreign currency IDR A minus and local currency IDR A. The short-term rating is affirmed at short-term 'F1' and country ceiling at 'A+'.

"The Positive Outlook reflects the Israeli economy's increased dynamism and resilience following the reforms of recent years, demonstrated by the limited economic impact of the war in Lebanon and the strong rebound now underway," said Richard Fox, Head of Middle East and Africa Sovereign Ratings at Fitch. "The strengthened policy framework has also endured a change of government and the political fallout from the war. External solvency indicators have continued to improve and strong inward and outward investment reflect Israel's growing integration with the world economy. Last but not least, Israel's public debt ratio has declined and over the time horizon of the rating Outlook should fall below its previous low in 2000."

The Fitch report says that the Israeli economy grew 6% in the first half of 2006. Although GDP then fell in Q3 due to the disruption caused by the war and the loss of tourism, it has recovered strongly in the current quarter. Fitch predicts that growth for the year as a whole should be at least 4.5%, in line with potential.

Investment in machinery and equipment has picked up, although construction remains sluggish. Meanwhile, says the report, the current account surplus will increase to over 4% of GDP this year, with overall net external assets expected to reach 24% of GDP. Israel's net external creditor position and high per capita income exceed those of many more highly rated countries. Financial markets took the war in their stride, with the shekel now 5% stronger against the US dollar than in mid-July and interest rates having been cut to below US rates again. Foreign direct investment, both inward and outward, is at record levels.

The report says that Israel's public debt ratio will improve by 6% to 7% of GDP this year. Nevertheless, it continues, at around 90% of GDP, it remains higher than most rated peers' and continues to constrain creditworthiness. Israel needs more room for maneuver in the fiscal area than its rated peers, given the vulnerability of public debt dynamics to unexpected security developments, as demonstrated again this year.

Published by Globes [online], Israel business news - www.globes.co.il - on December 18, 2006

© Copyright of Globes Publisher Itonut (1983) Ltd. 2006

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