{"id":803957,"date":"2026-07-15T18:07:14","date_gmt":"2026-07-15T18:07:14","guid":{"rendered":"https:\/\/www.newsbeep.com\/ca\/803957\/"},"modified":"2026-07-15T18:07:14","modified_gmt":"2026-07-15T18:07:14","slug":"moodys-lowers-growth-outlook-over-heightened-risk-of-conflict-weakened-institutions","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/ca\/803957\/","title":{"rendered":"Moody’s lowers growth outlook over heightened risk of conflict, ‘weakened institutions’"},"content":{"rendered":"

Credit rating agency Moody\u2019s has lowered the growth forecast for Israel\u2019s economy, citing concerns over heightened defense spending amid geopolitical risks, while cautioning about a weakening of the country\u2019s institutions.<\/p>\n

\u201cAlthough the Israeli economy has demonstrated its resilience to geopolitical shocks in recent years, the fragile security environment continues to pose risks to the economic and fiscal outlook,\u201d Moody\u2019s cautioned in a report released late on Tuesday.<\/p>\n

Moody\u2019s maintained Israel\u2019s medium-grade Baa1 credit rating alongside its stable outlook, but cut the country\u2019s growth outlook for the economy for this year to 3.7%, down from a previous 5%. The forecast is lower than the Bank of Israel\u2019s prediction, which sees the economy growing by 4% in 2026, following 2.9% last year.<\/p>\n

\u201cWhile ceasefire and peace arrangements have been signed across several fronts, episodes of renewed hostilities underscore their fragile and tenuous nature, and we continue to assume that implementation will remain incomplete and that periodic violations and flare-ups are likely, keeping geopolitical risk as the principal constraint on Israel\u2019s sovereign credit profile,\u201d Moody\u2019s said.<\/p>\n

\u201cDownward pressure on the rating would likely build if geopolitical tensions increased again in a way that pointed to a lasting significant negative impact on the economy or the government\u2019s finances,\u201d the credit rating agency warned.<\/p>\n

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Earlier this year, Moody\u2019s upgraded Israel\u2019s credit outlook from negative to stable, amid expectations for a \u201cstrong post-war rebound,\u201d assuming that geopolitical risks subsided with ceasefires holding in Lebanon and Gaza.<\/p>\n

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\n\t\tPalestinians gather around the site of an Israeli drone strike in Gaza City\u2019s Sabra neighborhood, July 12, 2026 (AP Photo\/Jehad Alshrafi)<\/p>\n

Looking ahead, Moody\u2019s expects the pace of economic growth to pick up to 5% \u00a0 in 2027, \u201cif ceasefires with Iran, Hezbollah and Hamas ultimately hold.\u201d<\/p>\n

Moody\u2019s said in its report that Israel\u2019s current rating reflects the \u201ccountry\u2019s dynamic economy, high wealth levels, solid external position and the government\u2019s continued strong market access.\u201d<\/p>\n

\u201cHowever, public finances remain under pressure from structurally higher defense and national security spending which we project at around 6% of GDP per year,\u201d Moody\u2019s said.<\/p>\n

In addition, the credit rating agency assessed that \u201cinstitutions remain strong but have weakened in recent years amid heightened political polarization and tensions between key state institutions.\u201d<\/p>\n

In the latest sign of this trend, on Wednesday the Knesset began debating<\/a> legislation to significantly weaken the power of the attorney general \u2014 one of Israel\u2019s few checks on executive power \u2014 ahead of a final vote.<\/p>\n

The legislation would effectively strip the attorney general of authority over the government by allowing ministers to disregard the currently binding legal opinions and decide for themselves whether their actions are lawful.<\/p>\n

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\n\t\tAn IDF Humvee drives in southern Lebanon, July 7, 2026. (Emanuel Fabian\/Times of Israel)<\/p>\n

The bill represents the latest stage of Prime Minister Benjamin Netanyahu\u2019s government\u2019s campaign to weaken the judiciary, which began shortly after the government assumed power in 2022.<\/p>\n

Moody\u2019s warned that a weakening of Israel\u2019s institutions could be a factor in a potential downgrade of the country\u2019s credit rating. A lower rating raises credit costs for the government, businesses and households.<\/p>\n

\u201cA weakening of Israel\u2019s economic and fiscal prospects for reasons not directly related to geopolitical risk could also drive negative pressure on the rating,\u201d Moody\u2019s said. \u201cDownward pressure on the rating could also build as a result of a weakening of Israel\u2019s institutions, in particular if the judiciary proved to be weaker than what we have assessed so far, potentially as a result of institutional reforms.\u201d<\/p>\n

Back in September 2024, Moody\u2019s cut the country\u2019s credit score by two levels from A2 to Baa1, citing the \u201cdiminished quality of Israel\u2019s institutions and governance\u201d in their ability to manage state finances, and increased spending needs during the war with the Hamas terror group.<\/p>\n

Times of Israel staff contributed to this report.<\/p>\n


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