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2004 was a very good year economically, according to data released by the Central Bureau of Statistics Monday. The economy expanded 4.3 percent, more than tripling 2003's growth rate of 1.3 percent.

The most notable figure was the substantial growth in per capita GDP, which rose 2.5 percent after the standard of living indicator sagged three years consecutively. Private consumption jumped 4.6 percent in the second half of the year, following a robust 3.6 percent rise in the first half of 2004.

Vehicle purchases stood out among private consumption categories, speeding ahead 24.2 percent, while sales of major household appliances enjoyed more modest gains of 4.4 percent. Food consumption inched ahead 2.5 percent, as gas and electricity consumption grew 3.2 percent.

Investment in fixed properties and assets was flat in the second half as it had been in the first half of 2004, and investments in residential building slid 7.5 percent for the period.

The encouraging economic news and the truce with the Palestinian Authority has evidently influenced Israel's standing in international markets, leading the Fitch rating agency to upgrade the outlook on its domestic currency from Negative to Stable.

Analyst Richard Fox, who covers Israel for the British agency, commented Monday that while Israel made progress at reducing its public debt to GDP ratio in 2004, it needs to pursue an aggressive policy to reduce its debt and budget deficit further.

Most particularly, it needs to decrease the ratio between its debt and GDP, he stipulated.

Fox affirmed Israel's long-term local currency rating of A, and its long-term foreign currency rating at A-minus, outlook Stable.

"Demonstrable spending control and a political commitment to spending restraint and deficit limitation lead Fitch to conclude that the debt ratio has at least stabilized and will probably trend down in the medium-term, albeit gradually," Fox wrote in Fitch's statement.

"This marks a significant, if not decisive, turning point in Israel's public debt dynamics," he added.

Fitch is the second credit rating company to raise Israel's rating lately, following Standard & Poor's last month. Moody's, which sent representatives recently to Israel, is expected to jump on the bandwagon.

Israel's debt-GDP ratio had been 107 percent but retreated below 105 percent during 2004, Fitch estimates, after three years of steep increases. The economic rally helped, but budget discipline, beginning with the cutbacks of mid-2002, was a key element. These cuts lopped off expenses of almost 4 percent of GDP since 2002, quite a feat considering that Israel was still mired in recession in 2003.

Euphoria would be a mistake, however. Israel's budget targets remain vulnerable to spending and revenue pressures, especially given the fragility of the new coalition and the political scene, Fox cautions. Moreover, the anti-disengagement faction threatens not to support the 2005 budget.

Fitch expressed concerns that Israel could change its budget targets as it has already done, raising the 2005 budget deficit target from 3 percent of GDP to 3.4 percent.

But Fitch professes itself comfortable that for all the underlying uncertainties, Israel's debt ratio will remain "broadly stable - a significant change from a year ago when Fitch expected the debt ratio to continue creeping up," Fox wrote.