Moody’s keeps Israel’s credit rating at the lowest level in its history Economy News

Despite the announcement of a ceasefire agreement in Gaza, the credit rating agency Moody’s maintained Israel’s rating at the BAA1 level, with a continued negative outlook, stressing that an improvement in the rating will not occur unless “the agreement advances beyond its first stage,” according to what the Hebrew newspaper Calcalist reported in a recent report.

The agency said in its statement that the cessation of fighting is a relatively positive development, but “it is not sufficient to make a fundamental change in Israel’s credit picture,” adding that its previous estimates had previously assumed the end of military operations before the beginning of 2026, and therefore “the impact of the agreement will be limited.”

Poor growth and persistent disability

Moody’s analysts raised their estimates of Israeli economic growth for 2025 from 2% to only 2.5%, with growth expected to accelerate to 4.5% in 2026, if relative calm is maintained.

But the report warned that the government deficit will remain at 5.2% of GDP this year, compared to the previous target of 4.9%, due to a “sharp rise in security spending.”

The agency added that “if the ceasefire agreement holds through 2026,” the deficit is expected to decline to 4.2%, provided that the new year’s budget is approved in the Knesset before the end of next March.

Pressures and fears

Moody’s indicated, according to Calcalist, that the return of reservists to the labor market after the end of the fighting may ease the pressure on wages, which could allow the Bank of Israel to reduce interest rates in early 2026, if inflation rates continue to decline towards the target range between 1% and 3%.

The Central Bureau of Statistics announced two days ago that the annual inflation rate fell in September to 2.5%, which restored some relative stability after a year of severe economic turmoil.

The Calcalist report quoted Moody’s analysts as saying that “geopolitical risks remain very high,” despite the temporary calm, and that any setback in the agreement could “hinder recovery opportunities and delay foreign investment decisions.”

The report added that Moody’s sees the decline in security risks as a limited opportunity for tourism to recover and increase the flow of foreign investments, but it stressed that this improvement “will remain fragile as long as the security conditions remain unstable.”

Standard classification

It is noteworthy that Moody’s had lowered Israel’s rating in September 2024 by two full degrees from A2 to BaA1, with a negative outlook, which is the lowest rating in the history of the Hebrew state.

The agency explained at the time that the decision was based on “the erosion of creditworthiness due to escalating security risks, weak financial discipline, and declining investor confidence.”

Calcalist concluded its report by saying that Moody’s is monitoring the political and economic situation in Israel with great caution, and that any potential improvement “will depend on the extent of the stability of the ceasefire agreement and the government’s ability to curb military spending and adjust the general budget.”