Fitch Downgrades Israel’s Credit Rating Amid Gaza Conflict

Fitch Ratings downgraded Israel’s credit rating from “A+” to “A” on Monday, citing concerns over the ongoing conflict with Hamas in Gaza, which the agency warned could extend “well into 2025.” The conflict, which began on October 7, has already led to significant casualties and economic disruption. Fitch highlighted the potential for the conflict to expand, with risks of it spreading to other fronts, particularly in the northern border region where Israel has been engaged in near-daily exchanges of fire with Hezbollah in Lebanon.

Economic Impact and Military Spending Concerns

The prolonged conflict is expected to have a substantial impact on Israel’s economy. Fitch pointed out that in addition to the human toll, there is likely to be significant additional military spending, as well as destruction of infrastructure. This could lead to further deterioration of Israel’s credit metrics, with economic activity and investment taking a hit. The agency also noted that public finances are under strain, with Israel projected to run a budget deficit this year.

International Mediation Efforts and Regional Tensions

Amid the ongoing hostilities, international mediators have invited both Israel and Hamas to resume negotiations on a ceasefire and hostage release deal. Israel has accepted the invitation, while Hamas has urged the implementation of a truce plan previously proposed by US President Joe Biden, instead of engaging in further talks. Meanwhile, tensions continue to rise as Iran and its ally Hezbollah in Lebanon have vowed revenge for recent killings of key figures in their leadership. The United States and European allies have called on Iran to de-escalate, warning of the potential for a broader conflict that could engulf the entire Middle East.

The war in Gaza, triggered by Hamas’s attack on southern Israel on October 7, has resulted in significant loss of life. According to official Israeli figures, 1,198 people, mostly civilians, were killed in the initial attack. Israel’s military response has led to the deaths of at least 39,897 people in Gaza, as reported by the territory’s health ministry.