Moody's Downgrades Israel's Credit Rating: Economic Outlook Dims
In a recent webinar, Moody's Investors Service downgraded Israel's credit rating to Baa1 with a negative outlook, projecting a significant decline in economic growth. Senior Vice President Kathrin Muehlbronner revealed that Israel's growth is expected to plummet from 4% to just 1.5% in 2025. This downgrade comes amid ongoing conflicts and political unrest, raising concerns about the country's economic stability. The absence of a clear exit strategy from the current war is a primary factor contributing to investor uncertainty and hindering sustainable economic growth.
Moody's analysis highlighted domestic political risks, with Muehlbronner noting that the government's actions have exacerbated social tensions, potentially jeopardizing international support for Israel. Issues such as the controversial actions of Jewish settlers in the West Bank and attempts to undermine judicial independence were cited as critical factors affecting the nation's international standing and economic outlook.
Economic Forecasts Raise Alarm
The economic forecasts presented by Moody's were alarming, indicating a slower recovery than previously anticipated. The agency has revised its long-term growth forecast down from 4% to 3% annually. Concerns were also raised about Israel's budget deficit, projected to exceed the government's targets by reaching approximately 6% of GDP in 2025. This increase is attributed to sluggish economic growth and skepticism regarding the government's financial management capabilities.
Despite these challenges, Moody's acknowledged some strengths within the Israeli economy, such as substantial foreign exchange reserves and a stable banking system. However, the overall sentiment remains cautious, as Muehlbronner expressed doubts about Israel's ability to regain the favorable security and economic conditions experienced in the past. The current challenges are deemed more complex and demanding than those faced previously.
