S&P Affirms Israel Credit Ratings Amid Ongoing Military Conflict, Negative Outlook Maintained

S&P Global has reaffirmed Israel's long- and short-term sovereign credit ratings at 'A/A-1' but maintained a negative outlook due to ongoing military conflicts with Hamas and Iranian proxies that pose high security risks and could weaken Israel's economy, public finances, and balance of payments. The agency warned that it could downgrade Israel's ratings within the next 24 months if the conflicts escalate or persist, negatively impacting economic growth and fiscal stability, but might revise the outlook to stable if military tensions and broader security risks decrease. Despite these challenges, S&P projects Israel's GDP growth to recover to around 3.3% in 2025, supported by strong investment and consumption, with moderate economic impact expected from U.S. tariffs due to the predominance of service exports, particularly in the technology sector. S&P economists, after consultations with Israeli officials and industry leaders, concluded that Israel's economy remains fundamentally stable despite nearly 19 months of conflict, though renewed military campaigns could increase government expenditures, disrupt economic activity, and raise borrowing costs amid already high interest rates. The agency also highlighted vulnerabilities to weakening investor confidence and market volatility in the U.S., a key funding source for Israel's tech sector, underscoring ongoing economic uncertainty amid geopolitical tensions. Overall, while Israel's diversified and adaptable economy underpins its credit strength, the potential for intensified conflict continues to present significant risks to its financial outlook.