UBS in pessimistic Israeli outlook, casts shadow on Finance Minister credibility - TheStreet

Investment bank UBS Warburg has published a pessimistic outlook on the Israeli economy. The economists estimate that in view of the political and economic situation, credit-rating firms will lower Israel's rating to BBB this year.

The sovereign credit rating is an important parameter for foreign investments.

The bank views the Israeli economy as problematic, and does not believe the emergency economic plan will provide an answer to the worst slowdown since 1950. The bank is worried by the fact that the central bank wasn't partner to the economic plan. Israeli markets responded negatively to the plan, inflation expectations rose, shekel bonds fell, and the dollar climbed to an all-time high, the bank said.

The bank reiterated its Negative rating, recommending maintaining limited exposure. UBS believes that the security and economic situation places Israeli investments at high risk and will wait for positive developments in order to upgrade the rating.

The credibility of Finance Minister Silvan Shalom hangs in the balance, the bank said. It noted that capital markets expect monetary policy will be more restrictive, and that Bank of Israel Governor David Klein will raise interest rates in the near future. The bank said the only sure thing is that interest rates will rise, while big question marks surround all other parameters.