In a research update on Israel, Goldman Sachs ruled that the treasury growth forecast of 4% of GDP is overoptimistic and recommended that investors reduce exposure to Israeli non-tech stocks.

The Tel Aviv Stock Exchange TA-100 index has proved relatively resilient over the last three months, write the Goldman analysts, thanks to the conservative monetary and fiscal policies of the Bank of Israel and government respectively in recent years.

But the 2002 budget proposal indicates that government policy is turning flaccid. The analysts recommend reducing exposure to non-tech Israeli stocks, based on assessments that political and fiscal uncertainty will spike this winter.

The analytical team assesses that the relative stability the marketplace has demonstrated in recent months could deteriorate rapidly, largely thanks to the government's lax fiscal policy. It is a bad time for lax fiscal policies, the analysts sum up.

The government's 2002 budget was based on overly optimistic treasury estimates of 4% economic growth next year. Moreover, the budget is already straining at the seams due to demands by the parties comprising the ruling coalition under Prime Minister Ariel Sharon.

The analysts lowered their growth forecasts to 1% for 2001 and 2.9% for 2002, well below the 2% consensus for next year but also well below the Finance Ministry's predicted 4% rate.