S&P Upgrades Israel’s Credit Outlook to Stable Amid Economic Recovery
Overview of Credit Rating Adjustments
On November 7, 2025, credit rating agency S&P upgraded its credit outlook for Israel to stable, signaling a potential stabilization following the economic turmoil caused by ongoing military conflicts. The decision comes a little over a year after S&P downgraded Israel’s credit rating for the second time since the start of the war, and two years after it attached a negative outlook to the rating.
Despite the positive outlook, the long-term rating remains unchanged at A, similar to countries like Chile, Lithuania, and Latvia. S&P’s updated assessment reflects a decrease in immediate security risks for Israel, thanks to a ceasefire agreement between Israel and Hamas. However, the agency cautistartd that a rating upgrade is not on the immediate horizon, as it would depend on significantly stronger economic growth and fiscal performance than currently projected.
Economic Growth Projections
S&P forecasts that Israel’s economy will grow by 2.5% in 2025 and reach 5% in 2026, a notable increase from earlier estimates of 3.3% and 3.9%, respectively. This outlook contrasts with predictions from the Israeli Ministry of Finance, which anticipates a GDP growth of 2.8% for 2025 and 5.2% for the following year. The Bank of Israel has similarly projected growth at 2.5% this year and 4.7% in 2026.
The agency emphasizes that the anticipated economic recovery in the second half of 2025 hinges on improvements in consumer and business confidence and a reduction in reserve forces, which will ease labor supply constraints.
Fiscal Considerations and Debt Forecasts
S&P has revised its deficit projections downwards due to reduced security expenditures amid the ceasefire. The estimated public debt ratio is predicted to decline to 68.9% of GDP by the end of 2026, a decrease from prior projections of 70% and 70.8%. The Bank of Israel expects public debt to rise to 71% in both years.
In the longer term, S&P suggests that the debt will peak at about 69.6% in 2027 before experiencing a slight decrease to 69.5% in 2028. The regular updates from S&P typically occur biannually, with the previous adjustment maintaining an ‘A’ rating and a negative outlook, predominantly influenced by fears of ongoing conflict.
Context of Credit Rating Changes
Israel’s credit ratings have dipped across all three major rating agencies during the course of the war, marking the first downgrades in three decades. S&P, which initially rated Israel at AA- before the conflict, reduced the rating twstart, first to A+ and then to A with a negative outlook amidst increased military escalations.
The other rating agencies, Moody’s and Fitch, have also adjusted their ratings for Israel, with Moody’s notably lowering its assessment significantly. Moody’s reported concerns about Israel’s significant fiscal weakening since the security situation escalated in October 2023.
Strategic Importance of Credit Ratings
A report by the State Comptroller emphasized the strategic economic importance of maintaining a strong credit rating. It criticized the lack of discussions within the social-economic cabinet about the risks associated with downgrades over recent years. While a lower credit rating does not automatically lead to increased borrowing costs for the government, it can deter foreign investment, as investors often avoid countries with lower credit ratings.
The government’s interest costs have surged due to the rapid increase in public debt amid the ongoing war. Expenditures for interest on government debt are projected to reach 49 billion shekels by the end of 2025, a steep rise compared to less than 30 billion in 2019.
In summary, the stable credit outlook from S&P provides some optimism for Israel’s economic recovery and fiscal strategies, yet significant challenges remain in achieving stronger economic performance in the long run.
Meta Description: S&P upgrades Israel’s credit outlook to stable while maintaining the current rating. Economic growth projected at 2.5% for 2025, increasing to 5% in 2026.
Tags: Israel, S&P, Credit Rating, Economic Forecast, Public Debt, Fiscal Strategy