Shaky Israeli Economy...Credit Rating Downgrade Within Sight

S&P Downgrades Rating Outlook to 'Negative'

Yocheved Lipschitz, an Israeli who was taken hostage by Hamas and later released, is holding a press conference at a hospital in Tel Aviv on the 24th (local time). Meeting with reporters at the hospital just one day after her release, Lipschitz said, "I went through hell. I never imagined the situation would turn out like this." [Image source=Reuters Yonhap News]

Global credit rating agency S&P has downgraded Israel's sovereign credit rating outlook to 'negative,' citing the ongoing armed conflict between Israel and the Palestinian militant group Hamas. Since the outbreak of the conflict, there are growing expectations that pressure to downgrade Israel's credit rating or outlook could intensify.

According to Bloomberg on the 24th (local time), S&P changed Israel's sovereign credit rating outlook from 'stable' to 'negative' on the same day. S&P analysts Maxim Livnikov and Karen Bartapetov explained the reason for the downgrade by stating, "The Israel-Palestine conflict is spreading more widely than expected and is negatively impacting credit indicators." S&P also expressed concerns about the potential prolongation of the conflict, saying, "The ongoing conflict is expected to continue for the next 3 to 6 months."

As the armed conflict prolongs, uncertainty over Israel's economy is expected to increase further. S&P forecasted that "the outbreak of the conflict will dampen business activities and worsen national finances, causing Israel's fourth-quarter gross domestic product (GDP) growth rate to contract by about 5% compared to the previous quarter." Israel spends approximately 4.5% of its GDP on defense.

Since its establishment in 1948, Israel has never experienced a credit rating downgrade from the three major global rating agencies?S&P, Moody's, and Fitch?despite multiple Middle East conflicts and global economic crises.

Meanwhile, Moody's announced on the 19th that it has placed Israel under review for a possible credit rating downgrade. Fitch also designated Israel's credit rating outlook as 'negative watch,' warning that it could downgrade the rating if the conflict escalates.

Since the surprise attack on the 7th, Hamas, which massacred civilians, has been met with a large-scale retaliatory campaign by Israel. Expectations arose that diplomatic tensions in the Israel-Palestine clashes might ease following U.S. President Joe Biden's visit to Israel, but the visit concluded without substantive results. The peace conference held in Cairo, Egypt, on the 20th also failed to issue a joint statement due to Israel's absence and the lack of U.S. involvement, increasing concerns about the prolonged Israel-Palestine conflict. However, there is some relief as Iran, identified as a backer of Hamas, has distanced itself from Hamas, and Saudi Arabia's stance on resolving the conflict has been conveyed, suggesting that the worst-case scenario may be avoided.

This content was produced with the assistance of AI translation services.