Moody’s, the international ratings agency, has announced that it has placed Israel’s A1 credit rating on review for a possible downgrade. The agency cited the ongoing hostilities between the Israeli Defense Forces (IDF) and the Palestinian militant group Hamas as the main reason for concern.
Moody’s stated that while Israel’s credit profile has historically shown resilience to terrorist attacks and military conflicts, the severity of the current conflict raises the possibility of a longer-lasting and more significant impact on the country’s creditworthiness.
The agency’s review will assess how the duration and scale of the conflict affect Israel’s economy, institutions, and public finances. Moody’s noted that this inspection may take longer than their usual three-month period, highlighting the potential seriousness of the situation.
Moody’s emphasized that a short-lived conflict could still have a credit impact on Israel. However, the longer the conflict persists and the more severe it becomes, the greater the impact on policy effectiveness, public finances, and the overall economy is likely to be.
This decision from Moody’s comes after another rating agency, Fitch, placed Israel’s A+ sovereign credit score on ‘rating watch negative,’ also attributing it to the Gaza crisis. Fitch warned that if the conflict escalates significantly and expands to other countries in the Middle East, it could substantially deteriorate Israel’s credit metrics.
It is worth noting that international rating agencies have never downgraded Israel before. The possible downgrade could impede the country’s ability to borrow abroad and potentially hinder its future growth plans.
The ongoing conflict in Gaza escalated earlier this month when Hamas launched a surprise incursion into southern Israel. In response, Israel intensified its blockade of Gaza and conducted a bombardment, leading to further tensions and violence.
The repercussions of the conflict extend beyond the region. Global oil prices have surged due to concerns over potential supply disruptions. Bloomberg Economics projections suggest that if the conflict spreads to the broader Middle East, oil prices could reach $150 per barrel, and the global economy could spiral into recession.
In conclusion, Moody’s decision to place Israel’s credit rating on review for a possible downgrade reflects the potential long-term and significant impact of the ongoing hostilities in Gaza. The agency’s review will carefully assess the effects on Israel’s economy and public finances, while Fitch’s warning highlights the broader risks associated with the conflict if it continues to escalate. The ramifications of the conflict, including surging oil prices and potential global economic downturn, emphasize the need for a swift resolution to bring stability to the region.
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