Moody's upgrades Israeli credit outlook from negative to stable following ceasefires with Hamas, Hezbollah

The global credit rating agency Moody's upgraded Israel’s credit outlook from negative to stable on Friday, saying its assessment shows that Israel’s exposure to geopolitical risk has “materially eased from very high levels,” citing a fragile but intact ceasefires with the terrorist organizations Hezbollah in Lebanon and Hamas in the Gaza Strip.

The multifront war began on Oct. 7, 2023, when Hamas terrorists massacred 1,200 Israelis and kidnapped 251 people in a surprise invasion of southern Israeli border communities. Hezbollah joined the war the next day, launching an unprovoked attack on northern Israel.

“While Israel’s geopolitical and security environments remain fragile, the signs of resilience of the economy to the conflicts of the past two years and the evidence of a large but also controlled impact on government finances indicate that the credit risks are now balanced,” Moody’s said.

The credit agency also stressed a growing confidence in the expanding Israeli economy, particularly its export-focused tech sector.

“Israel’s credit strengths and resilience are evidenced by the relative robustness of GDP growth and continued strong growth and investment in the country’s advanced technology sector, which has continued despite the heightened geopolitical tensions in recent years.”

Moody's downgraded the Israeli credit rating for the first time in February 2024 after the Israeli economy contracted following the Hamas October 7 attack.

In September 2024, the credit agency once again downgraded the Israeli credit rating amid tensions with the Iranian regime, Hezbollah, Hamas and the Houthis in Yemen.

“With heightened security risks, we no longer expect a swift and strong economic recovery as in previous conflicts,” Moody’s warned. “In turn, a delayed and slower economic recovery in combination with a more prolonged and broader military campaign will more persistently impact public finances, further pushing out the prospect of a stabilization of the public debt ratio, compared to our earlier projections.”

“While both Israel and Hezbollah insist on not seeking an all-out war, Israel’s strategy of ‘targeted escalation’ in order to restore deterrence and get Hezbollah fighters to withdraw from the border area significantly increases the risk of a full-out war,” Moody's assessed at the time.

However, by November 2024, a severely degraded Hezbollah reluctantly agreed to a ceasefire with Israel. In June 2025, Israel delivered a serious blow to the Islamic Republic of Iran during Operation Rising Lion. In October 2025, the Trump administration brokered a Gaza ceasefire between Hamas and Israel.

Overall, Moody's hailed Israel's economic resilience in its latest report. However, the agency reportedly does not plan to upgrade Israel’s credit rating in the near term due to continued geopolitical risks linked to a potential large-scale war with the Iranian regime.

“Geopolitical risks remain high and a constraint on the rating…with tensions occasionally flaring up, possibly resulting in ceasefires breaking and even military conflicts re-emerging,” Moody’s warned. “This translates into a long-lasting negative impact on the government’s finances and the economy.”

Looking ahead, Moody’s said Israel is expected to stabilize its debt level at around 68% of GDP. While that remains lower than in many other advanced economies, it is still above the pre-Oct. 7 forecast of about 50%. The agency also projected that Israel’s economy will grow by 5% in 2026, driven by what it described as a “strong post-war rebound.”

Outgoing Israeli Accountant-General Yali Rothenberg responded to the Moody's report, saying, “Looking ahead, consistent fiscal discipline and continued convergence measures are required to ensure a downward trend in the debt-to-GDP ratio over time.”