Moody’s lowers growth outlook over heightened risk of conflict, ‘weakened institutions’

Moody’s has lowered Israel’s economic growth forecast for 2026 to 3.7% from a previous 5%, citing heightened defense spending due to geopolitical risks and concerns over weakening institutions. The credit rating agency maintained Israel’s Baa1 rating with a stable outlook but warned that increased geopolitical tensions or a weakening of institutions could lead to a downgrade. Moody’s noted that while Israel’s economy is dynamic with high wealth levels, public finances are pressured by defense spending, projected at around 6% of GDP annually. The report also highlighted that “institutions remain strong but have weakened in recent years amid heightened political polarization,” referencing ongoing legislation to reduce the Attorney General’s power.