In a significant blow to Israel's financial standing, global financial ratings agency Moody's has downgraded the country's credit rating for the first time. The decision, announced on Friday, cited concerns about the ongoing conflict in Gaza and the looming possibility of a war with Hezbollah in the north, which could have detrimental effects on Israel's economy.

Moody's lowered Israel's credit rating from A1 to A2, with a "negative" outlook for the country's economy. However, it is important to note that the A2 rating still carries relatively low risk, according to Moody's.

Israel's finance minister, Bezalel Smotrich, vehemently criticized Moody's decision, dismissing it as a "political manifesto" lacking serious economic claims. Smotrich expressed his frustration, stating that the downgrade reflects a lack of confidence in Israel's security and national strength, as well as a lack of faith in the righteousness of Israel's stance against its enemies.

Prime Minister Benjamin Netanyahu attributed the downgrade solely to the ongoing war, asserting that Israel's economy remains strong and vowing that the rating would improve once the conflict concludes.

Israeli officials are now concerned that Moody's downgrade could prompt other major rating agencies to follow suit, potentially further impacting the country's economy. The downgrade may make it more challenging for the Israeli government to raise funds through bond sales, according to economist Michel Strawczynski.

Strawczynski acknowledged that if the war persists, it will undoubtedly have an impact on the economy. However, he suggested that a shorter conflict might have a lesser effect. Israel's economy has historically rebounded following previous confrontations with Hamas, but the current war has extended beyond previous durations, leading to increased military expenditures and significant call-ups of reservists, which strain the overall workforce.

Offering reassurance amidst the downgrade, Bank of Israel Governor Amir Yaron emphasized the resilience of the Israeli economy and pointed to signs of recovery in November, the month following the outbreak of the conflict.

Even before the conflict, Israel, known for its entrepreneurial dynamism in the tech industry, had been facing challenges. Concerns regarding Israel's governance, rising inflation, and a slowdown in global tech investments have weighed on the economy in recent times. Furthermore, Prime Minister Netanyahu's proposed judicial overhaul, aiming to limit the powers of the country's courts, has also adversely affected Israel's coffers.

Moody's specifically highlighted the proposed judicial overhaul as a concern, as it could weaken Israel's investment climate. However, the report released on Friday praised the country's robust checks and balances, ultimately leading to the shelving of the contentious reform in January.

As Israel navigates the ongoing conflicts and grapples with economic challenges, the impact of Moody's recent downgrade will be closely watched, with hopes that the nation's resiliency and strong economic foundations will prevail.