Moody's Keeps Israel's Credit Rating Unchanged

SadaNews Economy Translation - Moody's credit rating agency has maintained Israel's credit rating at Baa1 with a stable outlook.

Moody's clarified that this announcement does not constitute a rating action in itself, but is an updated summary of the considerations underlying the current rating. This was reported by the economics section of Yedioth Ahronoth and translated by SadaNews Economy.

The agency noted that the Israeli economy has demonstrated resilience in the face of geopolitical shocks, however, the fragility of the security situation continues to cast a shadow over economic and financial forecasts.

According to Moody's, ceasefire agreements with Iran, Hezbollah, and Hamas may allow the economy to gradually recover from the downturn it experienced in the first quarter of this year, although these agreements remain fragile.

If these agreements hold, Moody's expects growth of about 3.7% in 2026 and around 5% in 2027, following growth of 2.9% last year.

Regarding inflation, Moody's states that the annual price increase rate has decreased to 1.9% in May, partly due to the appreciation of the shekel and limited impact on Israel from rising global energy prices.

The agency forecasts that the average annual inflation rate will be around 2% in 2026 and 2027, a significant decrease compared to an average of 3% in 2025, which aligns with the Bank of Israel's target.

Moody's warned that the fiscal balance remains under pressure due to structurally high spending on defense and national security, estimated at about 6% of GDP annually.

The agency expects a central government budget deficit of about 5.3% of GDP in 2026, and about 4.4% in 2027, after reaching 4.7% last year, and a general government budget deficit of about 5.9% in 2026.

Debt-to-GDP ratio is expected to stabilize at around 70% over the next two years, slightly higher than the 68.5% recorded in 2025.

Moody's noted that upward pressure may arise from a clearer entrenchment of ceasefire agreements and rapid efforts to reduce the deficit. Conversely, renewed geopolitical escalation, economic or financial weakness unrelated to security, and a decline in Israeli state institutions, especially the judiciary, may exert negative pressure on the credit rating.