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Israel’s Credit Rating Dips for First Time

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Our Global Market Watch cautioned that Israel was at risk of a monthly decline in February. For the first time in the nation’s history, Moody’s has downgraded Israel’s credit score amid the war in Palestine. Israel has seen numerous conflicts over the years such as the Second Intifada or war with Hezbollah, and even then Moody’s did not see a decline in Israel’s credit worthiness. Moody’s cited the war with Hamas as the main reason for downgrading Israel from A1 to A2.

Moody’s is now forecasting a negative economic outlook for Israel. “While fighting in Gaza may diminish in intensity or pause, there is currently no agreement to end the hostilities durably and no agreement on a longer-term plan that would fully restore and eventually strengthen security for Israel,” Moody’s noted, as there is no certainty when or how this war will end.

The Bank of Israel predicts it will cost around 255 billion shekels (~$69,710,245,119.30 USD) to fund the war until 2025, and it believes 13% of GDP will be spent on the conflict. Moody’s is not concerned about the economic health of Israel as much as it is concerned about the direction of this war with Palestine as it only seems to be escalating four months after Hamas launched their attack. The credit agency explained that “ the ongoing military conflict with Hamas, its aftermath and wider consequences materially raise political risk for Israel as well as weaken its executive and legislative institutions and its fiscal strength, for the foreseeable future.”

Israeli Prime Minister Benjamin Netanyahu attempted to quell fears by saying he believes the conflict will be over in a few months. Meanwhile, Israel launched a series of airstrikes over the weekend that claimed the lives of over 100 people in Rafah, and the public perception of the war is beginning to change. The US, Israel’s main donor, has asked Israel not to attack Rafah without a plan in place to protect civilians.

Secretary of State Antony Blinken even addressed the situation while speaking in Jerusalem, “Israelis were dehumanized in the most horrific way on October 7th…But that cannot be a license to dehumanize others.”

Fitch will release its rating for Israel at the beginning of March, and Standard & Poor’s data will be released in three months. This war is unlike any the nation has fought in the past and the markets are beginning to feel the volatility.