S&P cuts Israel’s credit rating as “conflict intensifies”

International rating agency Standard & Poor’s downgraded Israel’s sovereign credit rating for the second time in a few months and reiterated its negative outlook, meaning a further downgrade is expected in the next 18 months. The rating was lowered from A+ to A – which is a medium to high rating.

“We see an increasing possibility that Israel’s conflict with Hezbollah, given the recent escalation in fighting, will become longer and more intense, posing security risks to Israel,” S&P analysts wrote. “The company believes that the fighting in Gaza and the escalation of fighting on the northern border , with the possibility of a ground operation in Lebanon, which may continue until 2025 with the risk of retaliation against the State of Israel.

“Accordingly, the company expects a delayed economic recovery in Israel and is lowering its real growth forecast to 0% in 2024, and 2.2% in 2025, along with a widening fiscal deficit in the short to medium term as defense-related spending increases significantly.” “

Standard & Poor’s expects Israel’s deficit to reach 9% at the end of 2024 and shrink to 6% in 2025.

Israeli Accountant General Yali Rotenberg said: “Israel’s balance of payments remains strong and the country continues to maintain a large current account surplus along with high foreign exchange reserves, which constitute a security cushion for the Israeli economy.” The company notes positively the government’s commitment to taking fiscal consolidation steps in order to stop the increase in the debt-to-GDP ratio.

Despite the downgrade, Standard & Poor’s left Israel’s credit rating one notch higher than Moody’s. Last week, Moody’s downgraded Israel’s rating by two notches to Baa1, which is equivalent to BBB+ from Standard & Poor’s.

Published by Globes, Israel Business News – en.globes.co.il – on October 2, 2024.

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