S&P could downgrade Israel again this week

On Friday ratings agency S&P will issue Israel's latest rating, just one month after its unexpected decision to cut Israel's credit rating for the second time this year with a negative outlook.

On Friday ratings agency S&P will issue Israel's latest rating, just one month after its unexpected decision to cut Israel's credit rating for the second time this year with a negative outlook. In April, S&P had cut Israel's rating from AA- to A+.

In its decision at the start of October, the ratings agency stressed that there could be a further downgrade if, "The military conflict will cause bigger harm than expected to growth and if the conflict continues to spread in a way that increases the risks of retaliatory attacks on Israel." Now approaching November 8, the original planned date for a rating announcement about Israel, concerns are growing in Israel that the negative outlook will be realized.

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Israeli forecasts have also fallen into line

Since S&P's decision in October, local forecasts have also aligned with the negative outlook regarding growth. The Bank of Israel cut its growth forecast for 2024 to only 0.5% and 3.8% in 2025. Last week, the Ministry of Finance cut its growth forecast to 0.4% for 2024 (down from 1.5% in the June forecast), but the Ministry remains optimistic about 2025, seeing 4.3% growth.

A harsh report was published last week by S&P Global Market Intelligence's research department predicting that Israel's economy would shrink due to the war. The report saw GDP contracting in Israel this year, with negative growth of 0.2%. Growth will also be reduced in the coming years with S&P predicting 3.2% growth in 2025 and 3.6% growth in 2026. The fiscal deficit is seen reaching 9% this year and remaining high at 6% next year and 5% in 2026. The report stresses that there could be changes due to developments in the war.

Later this month Fitch will publish its decision on Israel's credit rating. Fitch's rating for Israel is on the same level as S&P. At the end of September Moody's unexpectedly downgraded Israel's credit rating from A2 to Baa1 with a negative outlook. Moody's was the first rating agency to cut Israel's rating in February 2024.

Published by Globes, Israel business news - en.globes.co.il - on November 5, 2024.

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