Industry and Trade Ministry economists estimate that Israel's gross domestic product will grow by only 0.5% in 2002.

Meanwhile, treasury officials are sticking grimly to their forecast of 4%. But they may be forced to change it after a Knesset committee rejected the budget bill on the grounds that the 4% target is unrealistic.

The Industry Ministry analysts believe that all economic indicators will drop sharply next year, starting from a 2% decline in industrial production after a 4% slide this year.

They predict zero growth in exports, which contracted by 9% in 2001. The number of jobs will drop by 3% on top of the 2.5% fall this year, and unemployment will surge to 10%, compared with an average of 9.1% in 2001.

The business sector product will remain unchanged after declining by 1.5% this year, while GDP per capita will shrink by 1.9% after contracting by 2.4% in 2001, the Industry Ministry economists predict.

Moreover, they foresee the government deficit rising to 3.5% in 2002, compared with 3.1% this year.

The Industry Ministry says that global growth forecasts by both the Finance Ministry and the Bank of Israel are over-optimistic. It does not believe the global marketplace will rally in 2002, or that the economies of the United States, western Europe and Japan ¿ which take up 75% of Israel's exports - will turn around next year.

Industry Minister Dalia Itzik said yesterday that she hopes her analysts' forecasts are completely wrong, but pointed out that the Finance Ministry and Bank of Israel forecasts are not much sunnier.

"The government must increase its budgets for industrial development," she said, and suggested the establishment of a working capital support fund to help companies in trouble.

The Industry Ministry economists propose that the government encourage private and public consumption by lowering tax on households, granting a tax break on interest payments on mortgages up to a certain point, and cautiously lowering interest rates to improve the situation of households and small businesses.