Moody's is among the top rating agencies in the world (video snippet)

In a recent announcement, Moody's Rating Agency affirmed its A2 ratings for Israel's foreign-currency and local-currency issuances, keeping the outlook negative. This decision comes amid ongoing geopolitical risks and uncertainty, highlighting the complex security landscape that Israel navigates.

Moody's decision to maintain the negative outlook stems from the continuing risks of a military escalation between Israel and Iran, which remains a significant concern. Such an escalation could lead to considerable human and economic costs. Furthermore, the ongoing conflict with Hamas in Gaza adds to the uncertainty, with unpredictable consequences that could unfold over time, potentially exacerbating the impacts on Israel's institutional strength and public finances.

Despite these challenges, Moody's recognizes the resilience of the Israeli economy, particularly crediting the strong performance of the technology sector. The first quarter of 2024 saw a robust recovery in this vital industry, with investments stabilizing at $1.74 billion, mirroring the levels from the same period in the previous year. This stability suggests sustained confidence from foreign investors and a continued commitment to Israel's high-tech landscape.

Economically, while Moody's anticipates a modest real GDP growth of 0.6% for 2024, it projects a potential rebound in 2025, assuming a resolution to the ongoing conflicts. This forecast is consistent with past recoveries following similar periods of strife.

Comparatively, three weeks prior, Standard & Poor's adjusted its rating for Israel from AA- to A+, also with a negative outlook, placing it slightly above Moody's. Fitch, another major rating agency, recently modified its outlook to negative but maintained its A+ rating, one notch higher than Moody's assessment.

Moody's latest review underlines the agency's belief that the A2 rating adequately reflects the heightened geopolitical risks Israel faces, including the continued conflict with Hamas and potential escalations with Iran and its proxies, notably Hezbollah. The agency's scenario suggests that while Israel confronts these challenges, its key economic indicators and public financial management are evolving in line with expectations set during the February 2024 downgrade.

In conclusion, while the security challenges are profound, Moody's acknowledges the underlying strength and resilience of Israel's economic sectors, particularly technology, which continue to show robust performance amidst geopolitical tensions.

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