Ratings agency Moody's downgraded Israel's credit rating Friday, citing heightened geopolitical risks as its conflict with Hezbollah worsened and prospects for a ceasefire in Gaza receded.
"The key driver for the downgrade is our view that geopolitical risk has intensified significantly further, to very high levels," said Moody's in a statement.
This came as it shifted Israel's ratings down two notches from A2 to Baa1, marking its second downgrade this year.
Fitch and S&P Global Ratings have also lowered Israel's ratings this year.
Moody's noted that the risks had "material negative consequences for Israel's creditworthiness in both the near and longer term."
Israel shifted its focus from the war in Gaza to Lebanon this week, pounding Hezbollah strongholds around the country and killing hundreds of people.
A day after its Palestinian ally Hamas staged an unprecedented attack on Israel on October 7, Hezbollah started fighting Israeli troops along the Lebanon border.
"Longer term, we consider that Israel's economy will be more durably weakened by the military conflict than expected earlier," Moody's said on Friday.
It noted that the intensity of conflict between Israel and Hezbollah has "increased materially over recent weeks, with a further severe escalation a possibility."
"At the same time, prospects for a ceasefire in Gaza have receded," Moody's added.
The agency also said "there is no visibility on an exit strategy from the military conflict that would restore a level of certainty and security, on which the economy and business investment ultimately rely."