International credit rating agency Standard and Poor's has affirmed its foreign currency sovereign credit ratings on Israel at A+/A-1, and its local currency ratings at AA-/A-1+, with a stable outlook.

In its announcement, S&P said, "The Israeli economy continues to generate solid economic growth and enjoy a net external asset position, even though the current account has temporarily turned negative. The stable outlook reflects our view that there is sufficient political will to prevent a sizable increase in the government's debt burden, and that major security risks will be contained."

S&P noted that "there has been fiscal slippage on account of lower government revenues," but added, "recent austerity measures and current growth levels should ensure that debt ratios modestly improve in the medium term.”

Referring to the most important economic development in Israel in recent times, the discovery of large offshore gas reserves, S&P said, "We forecast that by the middle of the decade domestic natural gas production should contribute to improved external and fiscal balances."

Minister of Finance Yuval Steinitz said that the affirmation of S&P's rating was evidence of the stability of the Israeli economy in the face of the international economic crisis.

In a review of the Israeli economy published on Thursday, HSBC forecast a fiscal deficit of 4.1% of GDP in 2012, compared with 3.3% in 2011, and that the Bank of Israel would cut its key interest rate by 0.25% by the end of this year or in early 2013. HSBC sees growth of 2.9% in Israel in 2012, falling to 2.6% in 2013, unemployment rising to 7.8% in 2013, and a shekel-dollar exchange rate of NIS 3.65/$ by the end of 2013.

Published by Globes [online], Israel business news - www.globes-online.com - on September 30, 2012

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