Israeli credit rating unlikely to get upgrade during Gaza war, S&P official says
JERUSALEM, May 27 (Reuters) - Israel's credit rating is unlikely to be upgraded until the war in Gaza ends, since the conflict weighs on the Israeli economy and its fiscal position, S&P Global Ratings Director Maxim Rybnikov said on Tuesday.
Any widening of the conflict to Iran would prompt a ratings downgrade, but that is not S&P's baseline scenario, Rybnikov said.
S&P earlier this month affirmed Israel's long- and short-term foreign and local currency sovereign credit ratings at "A/A-1" and maintained a "negative" outlook.
"For the outlook side, it's all about security risks and how this is going to unfold," Rybnikov told the Israel Democracy Institute's annual economic conference.
"The key downside triggers are, first of all, military conflicts hampering some of Israel's characteristics, such as economic growth, fiscal position and balance of payments more than we currently anticipate."
Even in the medium term, higher defence spending is expected to put pressure on Israel's fiscal position, with projections of a budget deficit of 5% in 2027 and 4.2% in 2028, Rybnikov said.
He said the war that began in October 2023 had already lasted longer than initially anticipated.
"We don't know ... the way forward and how the war is going to end, and for us, it certainly presents risks, especially in a scenario where there's a more significant escalation," he said.
Yet, Israel's outlook could move back to "stable" in the event of a reduced likelihood of military escalation and an easing in broader security risks.
"We still expect some stabilisation to happen over the medium term. What forms and how quickly it will take is still uncertain," Rybnikov said.
Globally, he said there has been a "seismic shift" in U.S. trade policies and S&P assumes 25% tariffs on items such as water, steel, semiconductors and aluminum in addition to a 10% across the board tariff. But he does not expect a U.S. recession from a slowdown in growth in the U.S. and China.
"The numbers ... are very uncertain and there (are) significant downside risks," Rybnikov said.
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