Standard & Poor's today reiterated its A/A-1 sovereign credit rating for Israel with a "Stable" outlook. However, in line with Friday's downgrade of the US credit rating from AAA to AA+, S&P downgraded US guaranteed Israeli government bonds to AA+.
The downgrade affects six bond series totaling $5.94 billion.
S&P economists began their annual review of Israel a few days ago. Top sources in Jerusalem said that S&P's main concern was about housing prices. "They are worried about how we intend to deal with a real estate bubble, if one has already developed," said a source.
S&P is also concerned about repercussions from the upheavals in Arab countries on Israel and its security. Potentially future hostile regimes are liable to undermine Israel's stability, affect Israel's economic activity and growth, and, most of all, cause a sharp increase in defense spending thereby increasing the deficit and debt. Israel is also affected by the weakness in the US and European economies, which account for half of Israel's exports.
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