S&P projects 5% growth for Israel economy despite war-related setbacks

Israel’s economy received a boost over the weekend when S&P Global Ratings maintained the country’s A credit rating despite nearly three years of war, regional instability and economic disruption.

The quarterly update from one of the world’s “big three” credit rating agencies, S&P Global Ratings, also kept Israel’s outlook at stable, signaling that the agency does not expect a downgrade in its next review. The report projected Israel’s economy would grow by 5% this fiscal year, even as key industries continue to struggle.

That projection comes despite severe pressure on sectors ranging from tourism and agriculture to aviation and shipping. Reduced international air traffic through Ben Gurion International Airport has led to the loss of hundreds of jobs and billions of dollars in tax revenue.

The tourism industry has also been devastated by the war, with large numbers of small- and medium-sized businesses shutting down and larger companies scaling back operations, while thousands of jobs have disappeared.

The Red Sea resort city of Eilat has also been hit hard by declining international tourism and sharply reduced activity at the city’s seaport. Those losses have been somewhat offset by an increase in domestic Israeli tourism.

Also under strain is the agricultural sector, with many cultivated fields and greenhouses in the Gaza border areas and the Galilee unable to operate due to military activity.

Another major contributor to the economy, the natural gas fields off Israel’s coast, has also seen operations interrupted several times over the last two and a half years. However, growing global demand for natural gas, coupled with recent supply interruptions from the Persian Gulf and Australia, means the gas Israel exports is fetching much higher prices than in the past, offsetting most of those losses.

Defense exports have also surged, with increased orders flowing to Israel’s three largest defense manufacturers – Elbit Systems, Israel Aerospace Industries and Rafael Advanced Defense Systems – as well as more than 150 smaller companies that supply components to them.

The S&P report cited Israel’s growing population, strong public sector, well-capitalized banks and a construction boom in several cities, including Jerusalem, as factors supporting future growth. The relatively optimistic outlook contrasted with projections for several other countries in the region.

A statement on the S&P Global Ratings website said the recent U.S. and Israeli strikes against Iran had “triggered immediate ‘risk-off’ sentiment across global financial markets” and warned that the conflict threatened “global supply chains and energy flows.”