Investment banking giant Goldman Sachs said on Thursday it lowered its Israeli growth forecast in 2002 to 3.5% from 4.3% due to expectations of slower growth in the United States.
Goldman analysts in Israel also predicted gross domestic product growth of just 1.6% in 2001, down from its previous forecast of 2.3% but above Israeli government predictions of 0.6%.
The Finance Ministry expects 4.0% GDP growth in 2002.
Goldman said its Israeli forecast is largely based on its predictions for the United States, in which it cut growth estimates to 1.0% from 1.6% in 2001 and to 0.5 % from 2.0% in 2002 following the attacks on New York and Washington on September 11.
"The (Israeli) macro outlook was already weak, owing to a global slowdown in ITC (information technology and communications) demand, weak tourism earnings and lax fiscal policies," the analysts wrote.
"While ITC investment in the U.S. was a global issue, the latter two topics were specific to Israel.
"Now, all three will have an impact on global activity across the board," they added.
Israel's economy, which grew 6.2% in 2000, has been hit in 2001 by a sharp drop in tourism in the wake of a Palestinian uprising while a technology slowdown worldwide has slashed technology exports - the main driver of growth in recent years.
However, Goldman maintained a Market Weight stance on domestic stocks on the back of stable private consumption and a 2002 budget that increases public spending on infrastructure and defence.
Goldman analysts said they favour Israeli technology companies Amdocs (NYSE:DOX), Mercury Interactive (Nasdaq:MERQ), Check Point Software Technologies (Nasdaq:CHKP) and Comverse Technology (Nasdaq:CMVT), all of which remain on Goldman's Recommended List.
"In this environment, investors should continue to focus on the highest quality companies, which provide mission-critical products with rapid return on investment and operate in relatively underpenetrated markets and/or end markets that should show relatively solid growth in 2002," Goldman wrote.