S&P Global Ratings has downgraded Israel’s long-term credit rating from ‘A+’ to ‘A’ due to escalating tensions with Lebanon, raising concerns about economic stability and public finances.
The conflict is expected to continue until 2025, potentially leading to further reprisals against Israel. This follows Moody’s recent downgrade of Israel’s credit rating to Baa1.
S&P projects a budget deficit of 9% by the end of 2024, narrowing to 6% in 2025 with economic growth stagnating in 2024 before rebounding slightly to 2.2% in 2025.
Despite the downgrades, Israel’s Accountant General, Yali Rothenberg, remains optimistic, citing a strong balance of payments and current account surplus as key indicators of economic resilience.
Impact on Israel’s Economy
The credit rating cuts may lead to higher borrowing costs, affecting the government, businesses, and consumers. This could result in higher taxes, slower inflation reduction, and impact pension savings and investment funds.
Amidst geopolitical tensions with Gaza and Hezbollah, Israel’s history with Lebanon adds complexity to the situation. Analysts suggest that economic recovery could be achieved through a lasting peace agreement and support from the U.S. government and Jewish diaspora.
As Israel navigates these challenges, the future remains uncertain. The country’s tech sector and defense industry provide some economic strength, but the path forward will be shaped by various factors and actions of involved parties.
The coming months will be critical in determining whether Israel can stabilize its economic outlook amidst ongoing conflicts and geopolitical uncertainties.