Fitch Downgrades Israel's Credit Rating Amid Ongoing Conflict
In a significant move, Fitch Ratings has downgraded Israel's credit rating from "A+" to "A" due to the prolonged aggression in the Gaza Strip, which has now entered its tenth month. This downgrade reflects the broader implications of the ongoing war, including heightened geopolitical tensions and military operations on multiple fronts. Fitch has maintained a negative outlook, indicating the possibility of further downgrades in the future, which has raised concerns among investors.
Economic Impact of the Conflict
The downgrade has had immediate effects on Israel's economy, with the shekel dropping by up to 1.7% against the dollar and Tel Aviv stocks closing approximately 1.5% lower. Fitch's analysts predict that the budget deficit could reach around 7.8% of GDP this year, significantly surpassing the Israeli Ministry of Finance's target of 6.6%. They warn that if the conflict persists into 2025, the deficit could rise even further, exacerbating economic instability and investment challenges.
Government Response and Future Outlook
In response to the downgrade, Israeli Finance Minister Bezalel Smotrich downplayed its significance, asserting that such actions are expected during times of conflict. He emphasized that Israel's economy remains robust despite the ongoing challenges. However, the escalating military tensions, particularly with Iran and its allies, present a risk of increased military spending and potential expansion of the conflict, which could further strain economic resources and infrastructure.
- Fitch's downgrade follows similar actions from other major credit rating agencies, including Moody's and Standard & Poor's. The credit rating landscape for Israel has been under pressure since the onset of the war on October 7, with each agency citing the ongoing conflict and its implications for economic stability. Analysts suggest that the situation could further deteriorate if military operations continue to escalate, leading to higher budget deficits and increased economic challenges for the Israeli government.
