Moody’s says only prolonged ceasefire will reduce ‘downside risks’ to Israel’s economy

Moody’s Investors Service says only a durable and prolonged ceasefire with the Hamas terror group in the war in Gaza reduces “downside risks to Israel’s economy and public finances.”

“It also reduces the tail risks for the Middle East region from an escalation that involves Iran, and the conflict’s spillover effect on global supply chains from Red Sea shipping disruptions,” says Moody’s senior analyst Christian Fang. “However, the terms of the ceasefire agreement are limited in scope and duration currently… further negotiations will be required to secure a permanent cessation of hostilities and durably lower regional geopolitical tensions.”

Fang cautions that “domestic political challenges and security concerns are some hurdles for Israel that may impede further progress.”

In September, in a dramatic move, Moody’s cut Israel’s credit rating by two levels from A2 to Baa1, citing “diminished quality of Israel’s institutions and governance” to manage state finances, and increased spending needs during the war period, which is negatively affecting the country’s creditworthiness. The rating agency also maintained a negative outlook warning that Israel could be facing further downgrades.