After severely downgrading the Israeli government’s long-term local and foreign-currency score in September of 2024, the credit-rating agency Moody’s released a statement today (Tuesday) outlining its evaluation of the effects of the ceasefire in Gaza on Israel’s economy and financial system.
A Positive Forecast
In its statement, Moody’s updated investors regarding Israel’s credit profile. They outlined the potential for the Israeli economy to return to a strong growth trajectory post-conflict – as long as the ceasefire in Gaza endures, along with the long-term stability of the ceasefire on the Lebanese border.
“Israel’s military conflicts with Hamas and Hezbollah have resulted in economic and fiscal burdens, heightened sensitivity to geopolitical risks (particularly due to a potential escalation into a full-scale confrontation with Iran), and weakened institutions and governance,” Moody’s noted. “A significant reduction in tensions would mitigate the risk of further deterioration in fiscal and economic indicators.”
While Israel’s credit rating or forecast have not yet been changed, the published statement indicated both optimism and concerns about the conflict potentially resuming.
The Serious Importance of Israel’s Credit Rating
Credit rating agencies play a crucial role for international investors, as voices of authority regarding assessments of the likelihood a country can meet its debt obligations. A lower rating increases the chance a country will have to pay higher interest rates to borrowers, raising overall expenses and inflating the national debt.
Over the past two years, public attention toward credit rating agencies has significantly increased, especially as the risk of a downgrade has reached historic levels. Initially amid the judicial reform events, agencies downgraded Israel’s forecast to “negative,” signaling a potential future drop. Unfortunately, this forecast then materialized as a consequence of the war breaking out, which demanded a dramatic increase in Israel’s economic spending.
In September, Moody’s downgraded Israel’s rating to ‘Baa1’, the second tier of ratings, while maintaining its negative outlook. While the newly released statement specified that a renewed positive outlook and rating has not been officially implemented, it does signal a “positive direction toward the re-establishment of a positive forecast.”
While challenges remain, Moody’s report offers strong hope for Israel’s economic recovery. With continued stability and recovery efforts, Israel has the potential to restore investor confidence and regain its position as a robust and thriving economy.
