International ratings agency S&P has downgraded Israel's sovereign credit rating for the second time within the space of a few months and reiterates a negative outlook, which means a further cut is expected in the coming 18 months. The rating was cut from A+ to A - a medium to high rating.
S&P analysts wrote, "We see an increasing likelihood that Israel’s conflict with Hezbollah, given the recent escalation of fighting, becomes more protracted and intensifies, posing security risks for Israel," and added, "The company believes that the fighting in Gaza and the escalation in fighting on the northern border, with the possibility of a ground operation in Lebanon, might continue into 2025 with a risk of a response against the State of Israel."
"Accordingly the company expects a delayed economic recovery in Israel and revises downwards the real growth forecast to 0% in 2024, 2.2% in 2025 together with the widening of the fiscal deficit in the short to medium term as defense related spending increases even further."
S&P expects Israel's deficit to reach 9% at the end of 2024 and narrow to 6% in 2025.
Israel's accountant general Yali Rothenberg said, "Israel's balance of payments remains strong and the country continues to hold a significant current accounts surplus alongside high foreign exchange reserves, which are a security cushion for the Israeli economy. The company positively notes the government's commitment to take fiscal consolidation steps in favor of stopping the increase in the debt-to-GDP ratio."
Despite the cut, S&P has left Israel's credit rating higher than Moody's by one notch. Last week Moody's downgraded Israel's rating by two notches to Baa1 - the equivalent of S&P's BBB+.
Published by Globes, Israel business news - en.globes.co.il - on October 2, 2024.
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