Israel suffers major blow as S&P follows Moody's in downgrading credit rating

In a major blow to Israel’s economic standing, Standard & Poor’s (S&P) has downgraded the occupation state’s credit rating from A+ to A, following a similar move by Moody’s last week. The latest downgrade, announced last night, marks a continuing trend of major credit rating agencies expressing concern over Israel’s economic prospects amidst the ongoing genocide in Gaza and now Tel-Aviv’s escalation of violence across the border in Lebanon.

S&P cited Israel’s attack on Hezbollah in Lebanon as a primary factor in its decision, highlighting potential security threats and their impact on the economy of the apartheid state and public finances. The agency maintained a negative outlook, suggesting the possibility of further downgrades in the future. Notably, this decision was made prior to Tuesday’s retaliatory missile attack by Iran against Israel, which could potentially exacerbate Israel’s poor economic prospects.

Moody’s surprised the markets last Friday with a two-notch downgrade of Israel’s credit rating from A2 to Baa1, a level typically associated with less wealthy and developed nations. The decision was met with criticism from Israeli government officials, but reflected growing uncertainty over the country’s economic trajectory. The agency pointed to the unusual length of Israel’s aggression and the lack of a clear resolution as key factors influencing its decision.

Despite scoring minor tactical victories with the pager terrorist attack and the assassination of Hassan Nasrallah, analysts say that Israel is strategically in a worse position than before 7 October. Moody’s warned that ratings could be downgraded further, potentially by multiple notches, if current tensions with Hezbollah escalate into a full-scale conflict.

Fitch Ratings also downgraded Israel’s credit rating in August from A+ to A, citing worsening geopolitical risks and the potential for the Israel-Hamas war to extend well into 2025. Fitch maintained a negative outlook, aligning with the assessments of its peers.

With these recent downgrades, all three major global credit rating agencies — S&P, Moody’s and Fitch — have now lowered Israel’s credit rating, sending a strong signal about the risks to Israel’s economy and fiscal stability.

Experts had previously suggested that Moody’s two-notch downgrade might not be the last, a prediction that has been borne out by S&P’s recent action. The collective downgrades reflect the economic peril facing Israel if it continues military escalation in the region.

These credit rating reductions could have significant implications for Israel’s borrowing costs and its ability to attract international investment, potentially complicating the country’s economic recovery efforts as it grapples with ongoing security challenges.

Critics have long contended that the Zionist project of establishing a state based on Jewish supremacy in Palestine is unsustainable without ongoing military support and aid from the US and its Western allies.

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