US credit rating agency Fitch has downgraded Israel by one level, cautioning that the ongoing conflict with Hamas in Gaza may extend "well into 2025" and negatively impact economic activity.
Fitch reduced Israel's rating from "A+" to "A". In a Monday note, Fitch warned, "The Gaza conflict could persist well into 2025, with risks of escalation on other fronts." This could lead to substantial extra military expenditures, infrastructure damage, and prolonged harm to economic activity and investment, further weakening Israel's credit metrics.
Public finances are also affected, with Israel expected to face a budget deficit this year, according to Fitch. The office of Israeli Prime Minister Benjamin Netanyahu maintains that the economy is "solid and functioning well". In a Tuesday statement, it attributed the rating downgrade to Israel's response to a war imposed on multiple fronts, stating, "The rating will rise again once we prevail – and we will indeed prevail."
International mediators have called for Israel and Hamas to restart ceasefire and hostage release negotiations this week, which Israel has agreed to. Hamas, however, prefers the implementation of a truce plan proposed by US President Joe Biden over further talks.
Fitch predicts that if the conflict continues into next year, Israel will need to maintain high military spending and face additional disruptions to tourism, construction, and production in border areas. Israel has experienced near-daily cross-border exchanges with Hezbollah in Lebanon, leading to mass evacuations of Israeli civilians from border areas. Iran and Hezbollah have pledged retaliation for the killings of Hamas's political leader in Tehran and a Hezbollah commander in Beirut.
The United States and European allies have urged Iran to "stand down" amid growing fears of an imminent attack on Israel that could trigger a broader Middle East war. The conflict in Gaza started with Hamas's October 7 attack on southern Israel, which resulted in 1,198 deaths, mostly civilians, according to an AFP tally based on Israeli official figures. Militants also captured 251 people, 111 of whom remain held in Gaza, including 39 the military claims are deceased. Israel's retaliatory offensive in Gaza has claimed at least 39,897 lives, according to the territory's health ministry, which does not differentiate between civilian and militant casualties.
