Global rating agency Moody's has lowered its forecast for Israel's economic growth in 2026 to 3.7 percent on Tuesday night, down from the January projection of 5 percent.

The agency's new review said the lower forecast reflects the lingering economic fallout from the security situation, even as recent de-escalation agreements among warring parties in the regional conflict have reduced immediate risks.

It warned that government finances remain under strain because defense spending is expected to stay around 6 percent of gross domestic product (GDP) in both 2026 and 2027. Public debt is projected to remain close to 70 percent of GDP.

Despite the weaker projection, Moody's kept Israel's sovereign credit rating unchanged at Baa1 with a "stable" outlook.

The agency said Israel's economy has continued to show resilience, supported by high income levels, a strong technology sector and good access to financial markets.

Meanwhile, inflation is expected to average about 2 percent through 2027, helped by a stronger shekel and easing price pressures, it said.