S&P revises Israel outlook to negative

S&P said it revised its outlook for Israel to negative from stable and affirmed its AA- ratings.

“The outlook revision primarily reflects the material escalation in geopolitical and security risks that Israel faces following the attack by Hamas on Oct. 7, 2023, when militants crossed the border from the Gaza Strip, taking hostages and killing both military and civilian citizens. Since then, rockets have continued to be fired from Gaza into Israel. Israel has responded with aerial and artillery strikes on Gaza, where casualties have also been reported, and appears to be preparing a ground offensive in Gaza.

“Although it is difficult to predict the direction of events, our base case assumes the conflict will remain centered in Gaza. We do not expect the conflict to spread more widely,” S&P said in a statement.

The agency said it forecasts Israel’s quarterly GDP will decline by 5% in the fourth quarter versus the third quarter.

“In our view, the structure of the Israeli economy, which is mostly focused on high-tech services exports, with a high percentage of employees able to work from home, should somewhat cushion the impact. Additionally, we expect that international support could mitigate some of the negative macroeconomic effects on Israel,” S&P said.

The agency added, “We anticipate the economy will return to growth in the first quarter of 2024 and recover its pre-war output levels by the end of next year.”

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