S&P: Israel Can Absorb the Shock

International credit rating agency Standard & Poor’s (S&P) said on Sunday that Israel’s fundamentally strong economy should be able to absorb the battering of the coronavirus shutdowns.

S&P began with a survey of the grim realities: “We forecast Israel’s economy will contract by 5.5 percent this year due to the hit to activity from the COVID-19 pandemic. As a consequence, we project that the general government deficit will widen to over 10 percent of GDP this year, with net general government debt increasing to just under 71 percent of GDP at end-2020.”

But the conclusion was upbeat: “Nevertheless, strong macroeconomic fundamentals and high monetary flexibility should allow Israel to absorb the shock, while the large high-tech sector should aid economic recovery. We are therefore affirming our ‘AA-/A-1+’ sovereign ratings on Israel,” S&P said in a statement quoted by Globes.

Still, the agency warned that the rating could be revisited if events warrant: “We could take a negative rating action if the economic downturn proved deeper and longer than our projections, leading to a multi-year deterioration of public finances. This scenario could also emerge should policy measures to mitigate the pandemic prove less effective than we currently assume, possibly as a consequence of extended political turbulence. Additionally, downward rating pressure could build if external or domestic security risks increased substantially.”

The statement comes after rival agency Moody’s cut its rating outlook from Stable to Neutral, disappointing those who anticipated a rating upgrade. It was feared that Moody’s current rating would adversely influence S&P as well, but that turned out not to be the case.