Standard and Poor’s announced late Tuesday that it would cut Israel’s credit outlook from stable to negative, citing risks of an escalating conflict between the Israeli state and Hamas, AFP and Barrons reported.

“The negative outlook reflects the risk that the war between Israel and Hamas will spread or affect Israel’s credit ratings more negatively than we expect,” the rating agency said in a statement posted on its website.

“At the moment, we assume that the conflict will remain centered around the Gaza Strip and last no more than 3-6 months,” she said in the context of Israel’s presentation of its war plan against Hamas late last week.

Israeli Defense Minister Yoav Gallant explained that it consists of 3 phases, the first of which is “a military campaign of combat, followed by tactical maneuvers aimed at killing agents and damaging infrastructure” to destroy Hamas.

Israel expects fighting to continue “with less intensity” after that. The final phase of the campaign will include “creating a new security regime in the Gaza Strip, removing Israel’s responsibility for life in the Strip and creating a new security reality for the citizens of Israel,” Gallant said.

It is not yet clear what will happen to the Gaza Strip after Israel “takes over” the strip, there are several ideas about this, but no certainty.

Major rating agencies are preparing to downgrade Israel’s credit rating

Standard and Poor’s decision on Tuesday to downgrade Israel’s credit rating from “AA-” to “negative” came less than a week after Moody’s revised the country’s credit rating to “A1” with a downgrade outlook “by the Israeli government, citing “violent and unexpected the conflict between Israel and Hamas”.

The Fitch agency also announced that it was putting Israel’s A+ rating on review due to concerns about the escalation of the conflict.

On Tuesday, S&P said it expected the Israeli economy to contract by 5 percent in the fourth quarter of this year before recovering in early 2024.

S&P justifies this forecast by saying that security-related disruptions will affect the operations of businesses, which will also be affected by the call to arms of reservists among their employees.

The rating agency also said it expects Israel’s budget deficit to widen amid rising military spending and aid to war-affected families.

S&P also said it could further downgrade Israel’s credit rating if the conflict widens “significantly”.

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