S&P warns of conflict impact as Israel’s ‘A’ rating holds

S&P Global Ratings has reaffirmed Israel’s sovereign credit ratings at “A/A-1” for both long- and short-term foreign and local currency debt. However, the agency cautioned that an extended or escalating military conflict could weigh heavily on the country's economic resilience, fiscal health, and external balances.

Despite the uncertainty, S&P forecasts a moderate rebound in Israel's economy, with GDP growth projected at 3.3% in 2025. This recovery is expected to be driven by a resurgence in private consumption and capital investment. 

Potential risks from increased U.S. tariffs are expected to have a limited impact, as most Israeli exports to the United States are services — especially in information and communication technologies — which are typically not subject to trade duties.

The Bank of Israel projects slightly higher growth at 3.5%, and anticipates a drop in the budget deficit to 4.2% of GDP, down from 6.9% last year. 

This would ease pressure on public finances and support the country’s credit profile. Still, the central bank has warned that geopolitical tensions and volatility in global markets continue to pose significant risks, with Israel’s risk premium having widened noticeably.

Reflecting this caution, S&P maintained Israel’s outlook at “negative,” signaling that a downgrade remains possible if the security situation or economic metrics deteriorate further.