Credit rating agency Moody’s has raised its growth forecasts for the Israeli economy, but warns that these impressive figures do not necessarily reflect a corresponding improvement in domestic economic activity. In a report published last Thursday following the Knesset election the agency notes that much of the upward revision is due to statistical changes in how the activity of Israeli companies abroad is measured, a shift driven by a surge in high-tech exports linked to the artificial intelligence revolution.
Moody’s now projects that the Israeli economy will grow by 5% in 2026, up from a previous forecast of 3.7%, and by 6% in 2027, which compares with a previous forecast of 5%. According to the agency, this revision primarily reflects adjustments made by the Central Bureau of Statistics to better account for the contribution of Israeli companies' overseas production to the GDP.
This discrepancy is particularly notable in the forecasts issued by the Bank of Israel, which Moody’s references. While the central bank anticipates growth of 5.6% this year and 7.5% next year, these figures drop to just 3.4% and 5.1% when overseas production is excluded. Moody’s emphasizes that the rapid expansion of this activity distorts the picture of domestic economic performance. In other words, the upward revision in the forecasts is largely a result of this statistical adjustment, rather than a significant improvement in the outlook for domestic growth.
Fiscal forecasts improve, political risks remain
Alongside its reservations on the growth figures, Moody’s presents a more positive picture of Israel’s fiscal situation. The agency has lowered its deficit forecast for 2026 from 5.9% to 5% of GDP, and its debt-to-GDP ratio forecast from 70.1% to 68.5%. This improvement is attributed primarily to higher-than-expected tax revenues. For 2027 and 2028 the agency projects deficits of 4.8% and 4.3% as defense spending moderates, though such spending is expected to remain structurally high.
On the election results, Moody’s assesses that the identity of the next government will not have an immediate impact on Israel’s credit quality, given the broad alignment among the parties on economic, fiscal, and security policies. According to the vote count released on October 30, the Netanyahu-led bloc secured 53 seats-eight short of the 61 required for a majority in the Knesset. Moody’s estimates that the formation of a government could take weeks or even months.
Nevertheless, Moody’s identifies the weakening of institutional strength as the primary risk to credit quality following the elections. According to the firm, further measures that undermine the independence of the judicial system and the existing system of checks and balances could further erode its assessment of Israel’s institutional strength.
At the same time, Moody’s anticipates that another government led by Benjamin Netanyahu would likely continue current policies, thereby exacerbating tensions in international relations. By contrast, a government led by an opposition figure might demonstrate greater openness to diplomatic solutions rather than direct military confrontation. The firm notes that a shift in policy on Gaza, the West Bank, Lebanon, and Iran could help restore international relations and have a positive impact on Israel’s credit quality.
Moody’s has not announced any change to Israel’s credit rating of Baa1 with a stable outlook.
Published by Globes, Israel business news - en.globes.co.il - on November 1, 2026.
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