(MENAFN) A recent report from credit rating agency S&P has raised concerns about the economic outlook for Israel, projecting a significant contraction of 5% in the fourth quarter of this year. The downgrade is attributed to escalating geopolitical and security risks arising from the conflict with the Palestinian military group, Hamas. S&P highlighted factors such as diminishing business activity, declining consumer demand, and an overall "very uncertain" investment environment as contributors to the economic downturn.
The report also anticipates a fiscal deficit of 5.3 percent of GDP in 2023 and 2024, a considerable increase from S&P's pre-war estimate of 2.3 percent. The Israeli government has substantially boosted expenditures to finance military operations, provide compensation to businesses near the Gaza border, and support the families of victims and hostages taken by Hamas. This surge in spending has resulted in a record budget deficit, reaching USD6 billion last month, marking a more than sevenfold increase compared to the same period a year ago.
S&P's assessment follows its recent decision to downgrade Israel's credit outlook from 'stable' to 'negative' just two weeks after the conflict began on October 7. Both Moody's and Fitch have placed Israel under review for a potential downgrade as well.
The credit rating agency hinted at the possibility of restoring Israel's credit outlook to 'stable' if the conflict sees resolution, leading to a reduction in regional security and internal risks. The economic repercussions of the ongoing conflict underscore the multifaceted challenges faced by Israel, prompting discussions about the country's economic resilience and the potential path to recovery.
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