LONDON: Given the long-standing resilience of the Israeli economy to geopolitical developments, Moody's Investors Service expects heightened conflict with Hamas militants in Palestine to have only a modest impact on the country's economic recovery from the pandemic and on the government's near-term fiscal metrics.
However, Moody's said that the violence risks further complicating efforts to assemble a stable majority coalition government which will have negative implications for both elaboration of an effective post-crisis fiscal strategy and implementation of wider structural reforms.
As such, it does not expect the events to materially disrupt Israel's robust economic recovery which will remain supported by rapid vaccination progress and a strong pre-pandemic macroeconomic position. "We forecast growth of close to 5 per cent this year after the relatively modest 2.6 per cent contraction recorded in 2020," said Moody's in its latest credit outlook released on Monday.
Sectors such as tourism and hospitality -- already hardest hit by the pandemic -- are likely to be more negatively affected but account for a relatively small share of the economy. Moody's said that Israel's debt burden will continue to rise over the coming years to around 80 per cent of GDP by 2024 (from 60 per cent of GDP in 2019).
But the country's deep and highly developed domestic market as well as exceptional access to external markets -- also through an active diaspora bond programme -- will support debt affordability.
"We expect only a limited impact on the financial performance of Israeli trade credit insurers, given the conservative positioning of their insured exposures following the coronavirus disruption and our expectation that Israel's economic recovery will continue despite the current conflict," he added.
In addition, said Moody's, these insurers benefit from a government support programme which is expected to remain in place until the end of 2021.