Macro risks remain lower than in 2024, but optimism weakens

ISRAEL - Report 05 Mar 2025 by Sani Ziv

Geopolitical risks in 2025 remain significantly lower compared to 2024. The ceasefire in Lebanon is holding, with the new government demonstrating a strong commitment to its continuation. At this stage, there are no immediate signs of escalation from Syria, and the Iranian axis appears to be weakening. However, on the southern front, the likelihood of renewed fighting has increased, even if the U.S. continues to emphasize the need for a resolution. Meanwhile, the primary risk remains a potential confrontation with Iran amid its ongoing nuclear advancements. Additionally, political uncertainty persists in Israel, particularly regarding controversial legislative initiatives affecting governance and the judicial system.

From an economic perspective, forecasts for 2025 indicate improvements in key parameters, including a reduction in fiscal risk (revenues, expenditures, and budget deficit), credit risk, and growth-related concerns. Israel’s risk premium has declined notably, with 10-year CDS spreads contracting from a peak of 190 basis points in September 2024 to approximately 125 basis points currently. However, the risk premium remains about 50 basis points above pre-war levels, reflecting the lingering uncertainties.

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