S&P Cuts Israel on ‘Increasing Likelihood’ Conflict Intensifies

Israel was downgraded by S&P Global Ratings amid what the ratings firm sees as “an increasing likelihood” that the conflict with Hezbollah intensifies. 

The nation’s sovereign rating was cut to A from A , it said in a statement Tuesday. The outlook remains negative. It’s the second time S&P lowers Israel’s credit score this year.

“We see an increasing likelihood that Israel’s conflict with Hezbollah, given the recent escalation of fighting, becomes more protracted and intensifies, posing security risks for Israel,” S&P analysts said in a statement.

Yali Rothenberg, the Israeli finance ministry’s accountant general, said the decision “comes in response to the continuation of the war” and also emphasizes “that the Israeli economy is diversified with a proven ability to recover from crises.”

“Israel’s balance of payments remains strong and the country continues to hold a significant current accounts surplus alongside high foreign exchange reserves, which are a security cushion for the Israeli economy,” he said. 

Moody’s cut

The downgrade follows a similar move by Moody’s Ratings, which lowered Israel’s sovereign rating Friday, and comes hours after Iran fired about 200 ballistic missiles at Israel. It was a sharp but brief escalation between Middle Eastern adversaries that threatened to trigger a fresh round of attacks as Prime Minister Benjamin Netanyahu vowed to retaliate.

The attacks were the latest escalation of a wider conflict that began when Hamas, also supported by Iran, attacked the Jewish state on Oct. 7. Israel has rebuffed calls for a cease-fire from the US and others, and said last month it’s switching the focus of military operations away from its Gaza Strip campaign toward Lebanon.

On Monday, Israeli troops had begun what Netanyahu’s government said were “targeted ground raids” in Lebanon alongside airstrikes in Beirut’s southern suburbs, and the army later reported “intense fighting.”

The conflicts have proved financially costly for Israel. Government spending and the budget deficit are soaring. Israeli officials estimated war costs through the end of next year would amount to roughly $66 billion, or more than 12% of gross domestic product. Meanwhile sectors such as tourism, agriculture and construction have slumped. 

S&P revised down real growth forecasts to 0% in 2024 and 2.2% in 2025, and is also expecting widening fiscal deficits both in the short- and medium-term as defense-related spending increases.

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