On Wednesday morning, the renowned international credit rating agency Standard & Poor's (S&P) made a significant announcement regarding the State of Israel's credit rating. S&P decided to alter the rating forecast for Israel, shifting it from "stable" to "negative." However, it's important to note that S&P has upheld Israel's current credit rating at AA-, signaling a cautious stance amid recent geopolitical developments. This decision follows in the footsteps of other prominent credit rating agencies, Fitch and Moody's, which have also initiated special monitoring procedures due to concerns about a potential downgrade of Israel's credit rating.
S&P's rationale for this change primarily centers around what they perceive as a marked deterioration in the geopolitical and security landscape in Israel, especially since the recent terrorist attack by Hamas. The agency noted that while Israel has encountered several rounds of escalation with the Gaza Strip in the past, the ongoing conflict is seen as notably more impactful. Furthermore, S&P highlights another significant risk, namely, the potential for heightened tensions between Israel's Jewish majority and its Arab-Israeli minority, as witnessed during the 2021 Gaza operation. It's crucial to emphasize that S&P's assessment of this situation and the possibility of strained relations between Jewish and Arab-Israeli communities is not drawn from internal Israeli government sources or official Western calculations.
Israel’s credit outlook was cut to negative by S&P Global Ratings, which cited risks related to its war with Hamas https://t.co/l1up78GTxf
— Bloomberg (@business) October 24, 2023
S&P has identified various factors that could lead to a credit rating downgrade. These factors include an escalation of the conflict, increased geopolitical and security risks, and a scenario where the conflict significantly affects Israel's economic growth, fiscal situation, and balance of payments.
Conversely, if the conflict were to be resolved in a manner that reduces local and regional security risks without imposing substantial long-term economic burdens on Israel, the rating forecast could be revised back to "stable," as stated by the agency.
Despite S&P's assessment that the military conflict is unlikely to expand beyond Gaza, they foresee adverse economic consequences for Israel's leaders. This includes direct negative economic impacts stemming from ongoing rocket attacks, logistical disruptions, a decrease in economic activity, a reduction in the workforce due to mobilization of reserves, and the shutdown of gas production in the Tamar field, among other concerns.
BREAKING: Reports are stating that Israel's Finance Minister has estimated that the direct cost of the conflict is $246,000,000 per day. Here are the LATEST UPDATES on the conflict:⬇️🧵 pic.twitter.com/sjWb2cbeHX
— Kedar Capital (@KedarCapital) October 25, 2023
S&P's projections indicate a potential 5% decrease in Israel's quarterly GDP in the fourth quarter of 2023 compared to the third quarter of the same year. Investors and policymakers alike are awaiting the next rating announcement from S&P, scheduled for November 10, 2023. This decision will undoubtedly carry significant implications for Israel's economic outlook in the coming months.
