Moody's Adjusts Israel Growth Forecast

Credit rating agency Moody’s has updated its economic forecasts for Israel, increasing the projected growth rate for 2026 to 5% from 3.7%. The agency attributes this change to adjustments in how the Central Bureau of Statistics measures the economic activity of Israeli companies abroad.

The revisions primarily reflect statistical changes that better account for the contribution of Israeli firms’ overseas production to the country’s GDP. Moody’s notes that these adjustments do not indicate a corresponding improvement in domestic economic activity.

The Bank of Israel’s growth projections for 2026 and 2027 stand at 5.6% and 7.5%, respectively. However, when overseas production is excluded, these figures drop to 3.4% and 5.1%. Moody’s highlights that the rapid expansion of overseas activity distorts the picture of domestic economic performance.

Moody’s also revised its fiscal outlook, lowering the deficit forecast for 2026 from 5.9% to 5% of GDP and reducing the debt-to-GDP ratio from 70.1% to 68.5%. These improvements are largely due to higher-than-expected tax revenues. For 2027 and 2028, the agency projects deficits of 4.8% and 4.3%, respectively, as defense spending moderates.

Moody’s stated that the identity of the next government is unlikely to affect Israel’s credit quality immediately, as parties broadly agree on economic, fiscal, and security policies. The Netanyahu-led bloc secured 53 seats, eight short of a majority, and the formation of a government could take weeks or months.

The agency identified the weakening of institutional strength as the main risk to Israel’s credit quality. Further measures that undermine judicial independence and checks and balances could harm its assessment of institutional strength. Moody’s also noted that a Netanyahu-led government may continue current policies, potentially worsening international tensions.