The research department of US bank Citi has produced an analysis of Israel’s economic situation covering the credit rating downgrades by international rating agencies, the most recent being by Fitch last week. It concludes that further rating downgrades may be in the offing, particularly by Moody's.
The bank describes Israel’s credit rating as uncertain, since the markets see no end to the conflict in the region. "Israeli USD spreads have already departed from a neutral relative value versus single-A credits and the fluid geopolitical risk environment makes it very difficult to forecast when the next point of ‘ratings repricing’ might happen," the report summary states. The spread between dollar denominated Israel government bonds and their US equivalents is almost 200 basis points.
Citi’s forecast for the Israeli economy is similar to those in Israel and internationally. It sees economic growth of 1.6% this year, with a rebound to 4.9% next year. Only yesterday, US investment bank JP Morgan published a forecast of just 1.4% growth for the Israeli economy this year.
The outlook for the fiscal deficit is more severe. Citi sees the deficit as proportion of GDP exceeding the Ministry of Finance’s 6.6% target, and reaching 7.6%. Citi says that its forecast stems from its skepticism about the government’s willingness to raise taxes or control its spending, which amounts to sharp criticism of the government. "In our view, what drove the series of downgrades are doubts about the country’s ability and willingness to repair its balance sheet after a shock in the way it has succeeded to do so in the past," Citi’s report states, and continues: "We concur with these assessments: in our base case, the debt/GDP ratio should start declining again, but it is not hard to envision a scenario in which it does not. In terms of further rating actions, we think the Moody’s rating looks most at risk."
Published by Globes, Israel business news - en.globes.co.il - on August 21, 2024.
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