S&P Global has downgraded Israel's long-term credit rating to 'A' from 'A+', citing risks to the country's economy and public finances from the escalating conflict with Iran-backed Hezbollah in Lebanon, it announced on October 2.

Israel, following the October 7 attacks last year by Hamas, has been increasingly targeting its regional enemies including Hezbollah in Lebanon and Hamas in Gaza.

The rating agency highlighted concerns over potential security threats, including retaliatory rocket attacks against Israel, which could worsen the economic impact.

“We see an increasing likelihood that Israel’s conflict with Hezbollah, given the recent escalation of fighting, becomes more protracted and intensifies, posing security risks for Israel," S&P stated.

“The company believes that the fighting in Gaza and the escalation in fighting on the northern border, with the possibility of a ground operation in Lebanon, might continue into 2025 with a risk of a response against the State of Israel.”

"We now consider that military activity in Gaza and an upsurge in fighting across Israel's northern border - including a ground incursion into Lebanon - could persist into 2025, with risks of retaliation against Israel," S&P said in a statement.

The agency maintained Israel's outlook at "negative".

This downgrade follows a similar move by Moody's last week, which cut Israel's credit rating by two notches to "Baa1" and warned of a potential drop to 'junk' status if current tensions with Hezbollah escalate into a full-scale conflict.

The downgrades reflect growing concerns about the economic and fiscal implications of Israel's ongoing security challenges in the region.