Late on Friday, Moody's Ratings released an update on Israel, leaving the Government of Israel's A2 foreign-currency and local-currency issuer ratings and negative outlook unchanged, with a negative outlook.
In its reasons for the negative rating outlook, Moody’s states: "The risk of an escalation into an outright military conflict between Israel and Iran remains, which could inflict material human and economic costs. Also, Israel's conflict with Hamas in Gaza continues and its length and outcome remain highly uncertain." The agency adds that "The consequences of the conflict in Gaza for Israel's credit profile will unfold over a period of time, potentially well beyond the period of active fighting. The negative impact on the country's institutions and public finances may prove more severe than Moody's currently assesses."
Nevertheless, Moody’s retains Israel current A2 rating, saying "The rating affirmation reflects Moody's view that the current A2 rating adequately captures Israel's elevated exposure to geopolitical risks. Moody's baseline scenario involves a continuation of the conflict between Israel and Hamas and hostilities between Israel, Iran and Iranian proxies, in particular Hezbollah. Under these assumptions, Israel's key credit metrics, including the economy and public finances, are evolving as expected at the time of the downgrade to A2 on 9 February 2024."
On the positive side, Moody’s mentions the recovery in Israel technology sector in the first quarter of this year. "The high-tech sector has recovered strongly in Q1 2024, with investments reaching $1.74 billion, similar to Q1 2023, and no indications of diminished interest by foreign investors or exits from Israel. While GDP growth will likely be very weak this year - Moody's expects real GDP growth of just 0.6% for 2024 as a whole - , assuming an end to hostilities at some point this year, it will likely recover in 2025, similar to previous episodes of conflict," the agency’s reports states.
Three weeks ago, S&P downgraded its rating for Israel from AA- to A+, with a negative outlook. Moody’s rating is currently one notch below that of S&P. The third international rating agency, Fitch, in its latest review, downgraded its outlook, but left its actual rating at A+, one notch above that of Moody’s.
Published by Globes, Israel business news - en.globes.co.il - on May 12, 2024.
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