Israel’s 2026 economic growth will be lower than previously forecast and its debt higher, Moody’s Ratings said, citing elevated geopolitical risks and fragile ceasefire agreements with Iran and militant groups Hezbollah and Hamas.

The ratings agency in a report maintained Israel’s Baa1 credit rating and stable outlook.

In January, Moody’s changed its outlook to stable from negative saying that Israel’s exposure to geopolitical risk after a Gaza ceasefire had materially eased from very high levels, there by reducing the risk of a further weakening of Israel’s sovereign credit profile. Since that action, Israel fought a six-week war with Iran that began on February 28, along with a renewed conflict with Hezbollah.

“Although the Israeli economy has demonstrated its resilience to geopolitical shocks in recent years, the fragile security environment continues to pose risks to the economic and fiscal outlook,” Moody’s said in a report on Wednesday.

It noted that “fragile and tenuous” ceasefire deals should allow the economy to recover from a weak first quarter.

As long as the ceasefires hold, Moody’s said, economic growth should reach 3.7% in 2026, up from 2.9% in 2025 but below its January estimate of 5.0%.

The Bank of Israel projects 4% growth this year. Moody’s now expects the debt-to-GDP ratio to stabilise at 70% this year, above a 68% estimate in January.

“The economy continues to demonstrate resilience to military conflict and the impact on government finances remains controlled,” it said.

Israel’s rating could be upgraded in the event the ceasefires hold, along with more-than-expected fiscal improvement.

A ratings downgrade could come if “geopolitical tensions increased again in a way that pointed to a lasting significant negative impact on the economy or the government’s finances,” slower economic growth, or should Israel weaken its judiciary.

Last week, Israeli cabinet members voted to defy a Supreme Court decision regarding the country’s broadcast regulator, raising concerns of a constitutional crisis.

Earlier, Bank of Israel Governor Amir Yaron said Israel’s next government following an October 27 election must rein in defence-led state spending that has grown in recent years while advocating for higher taxes.