Moody's cuts Israel's growth forecast as war risks continue to weigh on the economy
The ratings agency maintained Israel's Baa1 rating but warned that fragile ceasefires and elevated geopolitical risks will slow growth and keep debt higher than previously expected.
Moody's Ratings has lowered its forecast for Israel's economic growth in 2026 and raised its debt projection, citing elevated geopolitical risks and the fragile ceasefire agreements with Iran, Hezbollah and Hamas.
The ratings agency nevertheless affirmed Israel's Baa1 sovereign credit rating and maintained its stable outlook.
In January, Moody's revised Israel's outlook to stable from negative, arguing that the Gaza ceasefire had materially reduced the country's geopolitical risks and lowered the likelihood of further deterioration in its sovereign credit profile.
Since then, however, Israel has fought a six-week war with Iran that began on February 28, alongside renewed fighting with Hezbollah.
"Although the Israeli economy has demonstrated resilience to geopolitical shocks in recent years, the fragile security environment continues to pose risks to the economic and fiscal outlook," Moody's said in its report published on Wednesday.
The agency said the current "fragile and tenuous" ceasefire agreements should allow the economy to recover from a weak first quarter, provided they remain in place.
Under that scenario, Moody's expects Israel's economy to grow 3.7% in 2026, compared with 2.9% in 2025, but below the 5.0% growth forecast it published in January.
For comparison, the Bank of Israel currently forecasts 4% economic growth next year.
Moody's also revised its debt outlook, estimating that Israel's debt-to-GDP ratio will stabilize at around 70%, higher than the 68% it projected in January.
"The economy continues to demonstrate resilience to military conflict and the impact on government finances remains controlled," the agency said.
What could change Israel's rating?
Moody's said Israel's credit rating could be upgraded if the ceasefires hold and fiscal performance improves more than expected.
Conversely, the agency warned that the rating could come under pressure if geopolitical tensions escalate again in a way that causes lasting damage to the economy or public finances, if economic growth weakens further, or if Israel's institutional strength deteriorates.
The report specifically cited the risk of weakening judicial institutions. Last week, cabinet ministers voted to defy a Supreme Court ruling regarding Israel's broadcast regulator, fueling concerns over a potential constitutional crisis.
The report follows comments by Bank of Israel Governor Amir Yaron, who said earlier Wednesday that the next government elected on October 27 will need to rein in defense-driven government spending, stabilize public debt and invest more in long-term growth engines such as education and infrastructure.
