International credit rating agency Moody’s published a review last week of the impact on Israel of the agreement ending the war in the Gaza Strip, in which its states, “The deal is credit positive for Israel because it will further enable resources and policymakers’ attention to shift back to supporting the economy and fiscal consolidation efforts,” but adds, “However, any significant benefit to Israel’s credit profile from the deal would come after a sustained move beyond the initial first phase.”
“Risks remain high that the deal will not be fully implemented, which could result in the cease-fire breaking and the resumption of military conflict in Gaza,” Moody’s warns.
The review does not represent a change in Israel’s credit rating, which remains at Baa1 with a negative outlook. Nevertheless, Moody’s does update its economic forecasts.
The agency now sees economic growth for Israel in real terms of 2.5% in 2025, which compares with 2% in its previous forecast, rising to 4.5% in 2026. Moody’s states, “Our economic and fiscal forecasts already assume that the military conflict in Gaza would end by early 2026, allowing for an economic recovery and gradual fiscal consolidation to take shape. Therefore, the cease-fire has a limited effect on our forecasts from 2026 onward.”
On interest rates, the review states, “The easing of labor supply shortages will reduce wage pressures that have prevented the Bank of Israel from cutting interest rates. As inflation moderates from close to 3% toward the middle of the central bank’s 1%-3% inflation target, we expect the Bank of Israel will begin to cut rates, likely in early 2026, which will support investments and consumption.” Moody’s estimates that about 130,000 foreign workers, mostly Palestinians, left the labor force in Israel after the war started, and only about half the shortfall has been made up so far.
On the fiscal front, Moody’s expects the central government’s annual deficit to remain at around 5.2% of GDP, the government’s revised target, in 2025. For 2026, if President Trump’s peace plan continues to be implemented, it expects the fiscal deficit to narrow to 4.2% of GDP, subject to the 2025 budget being passed by the Knesset by the end of March 2026.
In recent years. Of the three major credit rating agencies, Moody’s has taken the most severe line on Israel, cutting its sovereign rating by three notches to a historical low. Despite the more optimistic tone of the current review, it is clear that the way back up the agency’s rating ladder will be long. “For Israel and the broader Middle East region, longer-term credit benefits will depend on improvements in regional security, post-conflict reconstruction and governance in Gaza, return of shipping through the Suez Canal, resumption of trade and tourism and any durable decline in tensions between Israel and Iran,” it states.
Published by Globes, Israel business news – en.globes.co.il – on October 19, 2025.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2025.
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