Another rating agency mulls downgrading Israel

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Moody’s has placed the country’s credit score on review amid the escalation of hostilities in Gaza

International ratings agency Moody’s placed Israel’s A1 credit rating on review for a possible downgrade, according to a statement from the agency published on its website on Thursday.

Moody’s named the potential further escalation of hostilities between the Israeli Defense Forces (IDF) and the Palestinian militant group Hamas as the cause for a possible downgrade.

Israel’s credit profile has proven resilient to terrorist attacks and military conflict in the past. However, the severity of the current military conflict raises the possibility of longer lasting and material credit impact,” Moody’s stated.

The agency said it will focus its review on assessing how the duration and scale of the conflict impacts Israel’s economy, institutions, and public finances. It noted that the inspection may take longer than Moody’s traditional three-month period.

While a short-lived conflict could still have credit impact, the longer lasting and more severe the military conflict, the greater its impact is likely to be on policy effectiveness, public finances, and the economy,” Moody’s stated.

Earlier this week, another rating agency, Fitch, placed Israel’s A+ sovereign credit score on ‘rating watch negative,’ also citing the crisis in Gaza. It warned that a significant escalation and expansion of the conflict to other countries in the Middle East could significantly deteriorate Israel’s credit metrics.

International rating agencies have never downgraded Israel. A downgrade could hamper the country’s ability to borrow abroad, which would, in turn, impact Israel’s future growth plans.

The conflict escalated this month after the Palestinian militant group Hamas launched a surprise incursion into southern Israel. Israel responded by intensifying its blockade of Gaza and conducting a bombardment.

The escalation has caused a surge in global oil prices due to fears over potential supply disruptions in the region. According to Bloomberg Economics projections, oil prices may surge to $150 per barrel if the conflict spreads to the broader Middle East, while the global economy would fall into recession.

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