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- S&P Global cut its rating for Israel on Thursday as tensions in the Middle East escalate.
- Israel's economy may suffer if there's a broad and drawn-out conflict, S&P said.
- Moody's, another ratings agency, downgraded Israel for the first time in February.
S&P Global downgraded Israel on Thursday, warning that escalating tensions in the Middle East could affect its ability to repay debt.
The ratings agency cut Israel's sovereign credit score from "AA-" to "A+" while maintaining a negative overall outlook.
"The recent increase in confrontation with Iran heightens already elevated geopolitical risks for Israel. We expect a wider regional conflict will be avoided, but the Israel-Hamas war and the confrontation with Hezbollah appear set to continue throughout 2024," it said in a statement.
S&P forecast that Israel's overall deficit will rise from about 4% to 8% by the end of this year, mostly due to higher defense spending. It projected that net general government debt is likely to peak at 66% in 2026, and any broadening of the conflict in the Middle East could take an even bigger toll on the country's economy.
"A wider regional conflict, which is not our baseline scenario, could have a further material negative impact on Israel's security situation and, consequently, its economic, fiscal, and balance-of-payments parameters," S&P said.
The downgrade — which puts Israel's credit rating on the same level as countries including China, Bermuda and Kuwait — came as senior US officials told multiple outlets that Israel had struck Iran overnight. Tel-Aviv is yet to claim formal responsibility for the attack.
Another major credit ratings agency, Moody's, downgraded Israel for the first time in February, citing the impact that the ongoing war in Gaza could have on the country's finances.
The Israeli shekel fell 0.2% against the US dollar on Friday as markets digested both the downgrade and the reported strike on Iran, according to data from Refinitiv.