In its latest report on Israel published last night, Standard & Poor’s said that the war in Gaza and Lebanon is expected to continue until 2025, which will delay the country’s economic recovery until 2026. The international rating agency, which lowered Israel’s rating to A-, was Last month with a negative outlook, no new measures were taken on the rating after this report. Standard & Poor’s was supposed to release this report at the end of last week, but the publication was postponed and has not yet been officially published on the agency’s website.
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The report expects Israel to record 0% growth in 2024, which represents a contraction in the per capita GDP. The economy will only begin to recover in 2025 with modest growth of 2.2%.
According to Standard & Poor’s estimates, the fiscal deficit will reach 9% of GDP at the end of 2024 and remain at a high level of 5% to 6% of GDP until 2027. These numbers are much higher than those expected by the Ministry of Finance, Which also stems from different calculation methods. Net government debt is expected to reach 70% of GDP until 2027, an increase of 12% basis points compared to 2023.
Despite all this, Standard & Poor’s says positively, “Israel’s diversified and resilient economy, focused on exports of goods and services in the technology industry, along with its strong balance of payments, remain its main strengths.” The agency believes that the current account surplus will average 3.3% of GDP between 2024 and 2027.
The main risk identified by S&P is the potential for further escalation in the north and direct confrontation with Iran, although this is not part of the baseline scenario. “We could downgrade the rating over the next 24 months if the military conflict harms Israel’s economic growth, fiscal position and balance of payments more than we currently expect,” the agency warns.
Besides defensive risks, the company also identifies deteriorating relations with key allies. “The dire humanitarian situation and the increasing number of civilians being injured in Gaza, and increasingly also in Lebanon, have led to a number of public disagreements between Prime Minister Benjamin Netanyahu and key allies including the United States and the United Kingdom.”
Published by Globes, Israel Business News – en.globes.co.il – on November 13, 2024.
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