S&P trims Israel on geopolitical risk

S&P said it lowered Israel’s sovereign credit ratings to A+ from AA-, citing its geopolitical concerns.

“The downgrade follows what we view as a further increase in already high geopolitical risks that Israel faces in the aftermath of the first direct attack by Iran in mid-April 2024. This attack followed Israel's reported strike on Iran's consulate in Damascus. Under our baseline scenario, we still expect a wider regional conflict will be avoided, but the Israel-Hamas war and the confrontation with Hezbollah appear set to continue throughout 2024. This is in contrast to our October 2023 expectation of military activity not lasting more than six months,” S&P said in a press release.

Noting Israel’s increased defense spending, the agency said it forecasts Israel's general government deficit will widen to 8% of GDP in 2024 from 6.7% in 2023.

On the positive side, “We expect Israel's balance of payments will remain a key ratings strength. The country has been running a current account surplus for decades, primarily supported by the fast expansion of high-value-added information and communication technology services exports. The total external services surplus has averaged 7% of GDP in the past few years,” S&P said.

The outlook is negative.

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