Moody’s leaves Israel’s credit outlook stable, praises economic resilience despite war costs

Moody’s has maintained Israel’s sovereign credit rating at Baa1 with a stable outlook, acknowledging the economy's resilience despite ongoing regional conflicts. This routine review noted that while security risks and increased military spending limit upgrade prospects, the Israeli economy has "demonstrated resilience in the face of geopolitical shocks." The agency projects economic expansion of 3.7% this year and 5% in 2027, assuming ceasefires with Iran, Hezbollah, and Hamas remain in place, though it described these arrangements as fragile. Inflation is expected to average around 2% over the next two years. However, Moody's highlighted that permanently higher defense expenditures, estimated at 6% of GDP annually, will strain Israel's fiscal position, forecasting a central government deficit of 5.3% of GDP in 2026. The report also warned that renewed military escalation, weakening economic performance, or an erosion of institutional strength, particularly concerning the judiciary, could lead to negative rating pressure.