US credit rating agency Fitch has downgraded Israel a notch, warning that its ongoing conflict against Hamas in Gaza could last “well into 2025” and weigh on economic activity.
Fitch lowered Israel’s rating from “A+” to “A”.
“The conflict in Gaza could last well into 2025 and there are risks of it broadening to other fronts,” Fitch said in a note on Monday.
“In addition to human losses, it could result in significant additional military spending, destruction of infrastructure and more sustained damage to economic activity and investment, leading to a further deterioration of Israel’s credit metrics.”
Public finances have been hit with Israel projected to run a budget deficit this year, Fitch said.
The office of Israeli Prime Minister Benjamin Netanyahu insisted the economy is “solid and functioning well”.
“The lowering of the rating is a consequence of Israel’s dealing with a multi-arena war that was imposed on it,” it said in a statement on Tuesday.
“The rating will go up again when we win — and we will indeed win.”
International mediators have invited Israel and Hamas to resume negotiations this week on a ceasefire and hostage release deal, an invitation which Israel has accepted.
Hamas has urged mediators to implement a truce plan earlier presented by US President Joe Biden instead of holding more talks.
Fitch said that the conflict continuing into next year would force Israel to keep its military spending high and that there would be further disruption to tourism, construction and production in border areas.
Israel has exchanged near-daily cross-border fire with Hezbollah in Lebanon, prompting the mass evacuation of Israeli civilians from areas near the border.
Iran and its Lebanese ally Hezbollah have vowed revenge for the killings of Hamas’s political leader in Tehran and of a Hezbollah commander in Beirut.
The United States and European allies called on Iran to “stand down” on Monday, as fears mounted of an imminent attack on Israel that could spark an all-out war in the Middle East.
The Gaza war began with Hamas’s October 7 attack on southern Israel which resulted in the deaths of 1,198 people, mostly civilians, according to an AFP tally based on Israeli official figures.
Militants also seized 251 people, 111 of whom are still held captive in Gaza, including 39 the military says are dead.
Israel’s retaliatory military offensive in Gaza has killed at least 39,897 people, according to the territory’s health ministry, which does not provide a breakdown of civilian and militant deaths.