WASHINGTON – S&P Global Ratings said on Tuesday it is lowering Israel’s credit outlook from stable to negative, citing risks that the Israel-Hamas conflict could broaden, with a more pronounced impact on the economy.

“The negative outlook reflects the risk that the Israel-Hamas war could spread more widely or affect Israel’s credit metrics more negatively than we expect,” the credit rating agency said in a notice. “We currently assume the conflict will remain centred in Gaza and last no more than three to six months.”

On Oct 7, Hamas gunmen stormed across the border from Gaza into Israel, killing at least 1,400 people, mostly civilians, according to Israeli officials. More than 5,700 Palestinians, also mostly civilians, have been killed across the Gaza Strip in retaliatory Israeli bombardments, the territory’s Hamas-run Health Ministry said.

On Tuesday, S&P said it revised the outlook for its “AA-” long-term foreign and local currency ratings on Israel to negative.

S&P’s decision comes less than a week after another rating agency, Moody’s Investors Service, put the Israeli government’s A1 credit ratings on review for downgrade, pointing to the “unexpected and violent conflict between Israel and Hamas”.

Fitch Ratings has also announced that it is placing Israel’s A+ foreign and local currency issuer default ratings on negative watch over risks from the conflict.

S&P said it expects Israel’s economy to contract by 5 per cent in the fourth quarter of 2023 compared with the third, before rebounding in early 2024. This comes from security-related disruptions and reduced business activity, alongside the drafting of reservists and other factors such as a confidence shock.

Added budgetary measures to help households and businesses, on top of a rise in defence spending, are also expected to raise the government deficit, said S&P.

S&P added that should the conflict widen “materially”, it could cut ratings on the country. AFP