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Investing.com -- Moody’s Ratings has affirmed the Government of Israel’s Baa1 long-term local and foreign-currency issuer ratings while maintaining a negative outlook, the rating agency announced on Monday.
The decision reflects both credit risks and strengths amid the recent 12-day military conflict with Iran that began on June 13 and the current ceasefire.
Moody’s now expects Israel’s debt-to-GDP ratio to peak at approximately 75% over the medium term, revised upward from their previous 70% forecast made before the Iran conflict. The agency projects a general government deficit of around 8% of GDP in 2025, with increased defense spending accounting for about 1% of GDP.
Despite these fiscal challenges, the rating agency highlighted Israel’s strong market access and deep investor base, which help mitigate fiscal risks by limiting borrowing costs. The government has demonstrated its ability to meet financing needs during conflicts, with multiple oversubscribed bond issuances during and after the Iran conflict.
The Israeli economy has shown resilience, rebounding strongly toward the end of 2024 and continuing growth into early 2025, driven by investment and consumption. The high-tech sector remains particularly robust, with investments reaching approximately $2.2 billion (about 0.4% of GDP) in the first quarter of 2025.
Moody’s forecasts real GDP growth of around 2% for 2025, with headwinds from diminished consumer confidence, tourism sector weakness, and labor shortages. However, the agency expects a strong rebound to approximately 4.5% growth in 2026, supported by reconstruction, increased defense spending, and stronger consumption.
The negative outlook reflects persistent geopolitical and security risks, with Moody’s noting that the ceasefire with Iran remains fragile. Direct conflict with Iran, if prolonged, would further challenge Israel’s fiscal position and economic strength.
The agency acknowledged unprecedented direct U.S. military support during the Iran conflict, which demonstrates that Israel will likely continue to benefit from explicit American military and political backing for the foreseeable future.
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