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Credit rating agency Moody\u2019s has raised its growth forecasts for the Israeli economy, but warns that these impressive figures do not necessarily reflect a corresponding improvement in domestic economic activity. In a report published last Thursday following the Knesset election the agency notes that much of the upward revision is due to statistical changes in how the activity of Israeli companies abroad is measured, a shift driven by a surge in high-tech exports linked to the artificial intelligence revolution.<\/p>\n
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Moody\u2019s now projects that the Israeli economy will grow by 5% in 2026, up from a previous forecast of 3.7%, and by 6% in 2027, which compares with a previous forecast of 5%. According to the agency, this revision primarily reflects adjustments made by the Central Bureau of Statistics to better account for the contribution of Israeli companies’ overseas production to the GDP.<\/p>\n
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This discrepancy is particularly notable in the forecasts issued by the Bank of Israel, which Moody\u2019s references. While the central bank anticipates growth of 5.6% this year and 7.5% next year, these figures drop to just 3.4% and 5.1% when overseas production is excluded. Moody\u2019s emphasizes that the rapid expansion of this activity distorts the picture of domestic economic performance. In other words, the upward revision in the forecasts is largely a result of this statistical adjustment, rather than a significant improvement in the outlook for domestic growth.<\/p>\n
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Fiscal forecasts improve, political risks remain<\/p>\n
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Alongside its reservations on the growth figures, Moody\u2019s presents a more positive picture of Israel\u2019s fiscal situation. The agency has lowered its deficit forecast for 2026 from 5.9% to 5% of GDP, and its debt-to-GDP ratio forecast from 70.1% to 68.5%. This improvement is attributed primarily to higher-than-expected tax revenues. For 2027 and 2028 the agency projects deficits of 4.8% and 4.3% as defense spending moderates, though such spending is expected to remain structurally high.<\/p>\n
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On the election results, Moody\u2019s assesses that the identity of the next government will not have an immediate impact on Israel\u2019s credit quality, given the broad alignment among the parties on economic, fiscal, and security policies. According to the vote count released on October 30, the Netanyahu-led bloc secured 53 seats-eight short of the 61 required for a majority in the Knesset. Moody\u2019s estimates that the formation of a government could take weeks or even months.<\/p>\n
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Nevertheless, Moody\u2019s identifies the weakening of institutional strength as the primary risk to credit quality following the elections. According to the firm, further measures that undermine the independence of the judicial system and the existing system of checks and balances could further erode its assessment of Israel\u2019s institutional strength.<\/p>\n
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At the same time, Moody\u2019s anticipates that another government led by Benjamin Netanyahu would likely continue current policies, thereby exacerbating tensions in international relations. By contrast, a government led by an opposition figure might demonstrate greater openness to diplomatic solutions rather than direct military confrontation. The firm notes that a shift in policy on Gaza, the West Bank, Lebanon, and Iran could help restore international relations and have a positive impact on Israel\u2019s credit quality.<\/p>\n
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Moody\u2019s has not announced any change to Israel\u2019s credit rating of Baa1 with a stable outlook.<\/p>\n
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Published by Globes, Israel business news – en.globes.co.il – on November 1, 2026.<\/p>\n
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\u00a9 Copyright of Globes Publisher Itonut (1983) Ltd., 2026.<\/p>\n
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#Moodys #raises #Israel #growth #forecast<\/p>\n","protected":false},"excerpt":{"rendered":"
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