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S&P Downgrades Israel’s Outlook From Stable to Negative Amid Conflict

Credit rating agency Standard & Poor’s (S&P) revised the outlook on its AA- on Israel from “stable” to “negative,” the country’s Finance Ministry said in a statement on Wednesday, citing the agency’s report.

S&P explained the change in the escalation in geopolitical and security risks due to the ongoing conflict between Israel and the Islamic Resistance Movement (Hamas).

The report expects the conflict to harm Israel’s economic performance with an effect from rocket attacks, reduced labor force, and extra costs due to the mass recruitment of reservist soldiers, extended suspension of gas production, adverse impact on the Israeli tourism sector, and anticipated decrease in investments.

On the other hand, the composition of the Israeli economy, primarily centered around exporting hi-tech services and a significant portion of the workforce capable of working from home, is expected to provide some protection, according to the S&P.

Furthermore, the international assistance might alleviate certain adverse macroeconomic consequences for Israel, added the report.

Meanwhile, S&P forecasts Israel’s quarterly GDP to drop by 5 percent in the fourth quarter of 2023 compared with the third quarter. The downturn is expected to affect all expenditure categories, including domestic demand, exports, and imports.

It also expects the Israeli economy to grow by 0.5 percent in 2024, compared to 1.5 percent in the previous forecast, and then accelerate to 5 percent in 2025.

The report forecasts Israel’s budget deficit to widen to an average of 5.3 percent of GDP in 2023-2024, compared with 2.3 percent of GDP in the previous forecast, due to the expected support for households and businesses alongside extra defense spending.