Moody’s reaffirmed Israel’s sovereign credit rating at Baa1 with a stable outlook overnight Tuesday, leaving the rating unchanged in its latest periodic review.
The agency stressed that the publication did not constitute a formal rating action, but rather an updated summary of the considerations underpinning Israel’s existing rating.
Moody’s said ceasefire agreements with Iran, Hezbollah and Hamas could allow the economy to recover gradually
(Photo: Reuters)
Moody’s said the Israeli economy had demonstrated resilience in the face of geopolitical shocks, though the fragile security environment continued to weigh on the country’s economic and fiscal outlook.
The agency said ceasefire agreements with Iran, Hezbollah and Hamas could allow the economy to recover gradually from weakness recorded in the first quarter of the year, but warned that the arrangements remained fragile.
If the ceasefires hold, Moody’s expects Israel’s economy to grow by about 3.7% in 2026 and 5% in 2027, following growth of 2.9% last year.
On inflation, the agency noted that the annual rate slowed to 1.9% in May, partly because of the stronger shekel and Israel’s relatively limited exposure to higher global energy prices.
Moody’s forecasts average annual inflation of about 2% in both 2026 and 2027, down significantly from an average of 3% in 2025 and broadly in line with the Bank of Israel’s target.
The agency nevertheless warned that Israel’s fiscal position remained under pressure because of structurally high defense and national security spending, estimated at roughly 6% of gross domestic product annually.
Moody’s expects the central government deficit to reach about 5.3% of GDP in 2026 and 4.4% in 2027, compared with 4.7% last year. The broader general government deficit is projected at approximately 5.9% of GDP in 2026.
Israel’s debt-to-GDP ratio is expected to stabilize at around 70% over the next two years, slightly above the 68.5% recorded in 2025.
Moody’s said upward pressure on the rating could emerge if the ceasefires become more firmly established and the government moves more quickly to reduce the deficit.
By contrast, renewed geopolitical escalation, economic or fiscal deterioration unrelated to security spending, or a weakening of state institutions, particularly the judicial system, could place negative pressure on the rating.