S&P lowers Israel's rating outlook to negative on war risks

S&P Global Ratings said Tuesday it was 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.

In a notice, the credit rating agency said: "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."

"We currently assume the conflict will remain centered in Gaza and last no more than three to six months," it added.

On October 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 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 was 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 five percent in the fourth quarter this year 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 like a confidence shock.

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

Should the conflict widen "materially," S&P added that it could cut ratings on the country.