Rating agency Standard and Poor's reiterated an A-minus sovereign credit rating for Israel, despite the September 11 attacks on the United States.
The higher the rating, the greater the country's vulnerability to external shocks, S&P explains.
The Israel section of its report on the Middle East concluded that Finance Ministry's forecast of 4% GDP growth in 2002 is "virtually out of reach". It predicts an operational budget deficit of 2.5% to 3% of GDP in 2001 and next year too, far beyond the amended government target of 2.4%.
Moreover, public debt will stop shrinking, from 108% of GDP in 1998 to 93% in 2000.
Israel had already been hard hit by the global hi-tech decline and the escalating violence with Palestinians since September 2000, when the al-Aqsa intifada broke out, S&P writes.
The rating company does not see a short-term recovery in the floundering tourism or hi-tech sectors, either in startups or exports, which creates pressure on the Israeli economy.
The exchange rate and inflation expectations proved stable despite severe shocks to the economy, S&P notes. The bright side, hence the reiteration of the A-minus rating, relies on S&P's confidence that the Israeli government will maintain committed to fiscal consolidation over the medium term.