Moody's Ratings on Friday changed Israel's outlook to stable from negative and reaffirmed the country's Baa1 sovereign rating. The rating agency said the revision reflects its view that Israel's exposure to geopolitical risk has materially eased from the very high levels it faced previously, which reduces the likelihood of further deterioration in the sovereign credit profile.
In explaining the outlook move, Moody's pointed to a set of conflict conclusions across the region. The agency noted the end of military operations with Iran in June 2025 and the ceasefires reached with Hamas in Gaza in 2025 and with Hezbollah in Lebanon in 2024.
While Moody's cautioned that Israel's geopolitical environment will likely remain fragile, it said the economy and public finances demonstrated notable resilience through the recent periods of conflict. The agency added that the probability of renewed large-scale ground operations in Gaza has diminished, further supporting the reassessment.
On the macroeconomic front, Moody's expects a rebound in growth, forecasting 5.0% real GDP growth for 2026 followed by more moderate expansion of 3.0-3.5% in the years thereafter. The agency projects that fiscal deficits will decline from the elevated levels recorded in 2024 and 2025, and that the government debt-to-GDP ratio will stabilize at roughly 68%.
Moody's said the Baa1 rating affirmation balances the adverse effects of the recent conflicts with Israel's underlying credit strengths. The agency now anticipates that government debt will be about 18 percentage points higher in the medium term compared with forecasts made before October 7, 2023.
Moody's identified several credit strengths that support the sovereign score: strong GDP growth prospects, continuing investment in the technology sector, and sustained market access that helps constrain borrowing costs and mitigate fiscal pressures.
The agency left the local-currency and foreign-currency country ceilings unchanged at Aa3, which is four notches above the sovereign rating. Moody's said those ceilings reflect a balance between elevated geopolitical risks and Israel's diversified economy and external stability.
Looking ahead, Moody's described conditions that could alter the rating direction. Upward pressure would require a durable reduction in geopolitical risks combined with faster fiscal consolidation than currently expected. Conversely, renewed or increased geopolitical tensions, or signs of weakening economic or fiscal prospects, could place downward pressure on the sovereign rating.