(Reuters) -S&P Global affirmed Israel’s long- and short-term foreign and local currency sovereign credit ratings at “A/A-1” and warned that prolonged or intensified military conflict could negatively impact its economic, fiscal and balance of payments performance.

Israel’s resumed military operations in Gaza, along with ongoing military activities in neighboring Lebanon and Syria, continue to elevate security risks for the country, the ratings agency said on Friday.

S&P expects Israel’s GDP growth to recover to 3.3% this year, driven by stronger investment and consumption, despite potential impacts from higher U.S. tariffs.

Given that two-thirds of Israel’s exports to the U.S. are services — primarily in the information and communication technology sector, which are not subject to import tariffs — the direct hit to the Israeli economy is expected to be moderate.

According to the Bank of Israel, the economy is projected to grow 3.5% this year, with budget deficit expected to be 4.2% of GDP, down from 6.9% in 2024, easing pressure on the country’s credit rating.

The central bank, however, warned last month that conditions remained exceptionally uncertain because of the war and the global trade environment and as a result, Israel’s risk premium has increased considerably.

S&P affirmed the country’s outlook at “negative”.

(Reporting by Aatrayee Chatterjee in Bengaluru and James Mackenzie; Editing by Shilpi Majumdar)