S&P drops Israel's outlook from `stable' to `negative'

The international credit ratings agency Standard & Poor's said yesterday that it was lowering its outlook for Israel from stable to negative as a result of the continuing conflict between Israel and the Palestinians and fiscal deficits, but Israel's credit rating remained unchanged.

S&P's ratings are extremely influential on Israel's status on world financial markets and on the interest that the government and Israeli firms pay.

S&P said the reduction to negative came despite an improved outlook for the global economy.

"Although the emerging global recovery is expected to provide some relief later this year, we rule out a substantial rebound in Israel's economic activity in 2002, due to the persistence of the highly volatile and tense security situation," said S&P's credit analyst Konrad Reuss.

So far Israel's credit rating levels have remained unaffected by the situation and remain comparatively high (around the A2 level) for long-term foreign currency and local currency debt, but Israel's economic policy makers should definitely be concerned as the statement hinted that its credit ratings could be downgraded.