Israel's Financial Outlook Dims as Fitch Lowers Credit Rating Amid Ongoing Gaza Conflict

In a significant development reflecting the economic ramifications of the prolonged Gaza conflict, Fitch Ratings has downgraded Israel's credit rating from A+ to A. This decision comes as the devastating war approaches its first anniversary with no clear resolution in sight.

The credit ratings agency's move, accompanied by a negative outlook for the Israeli economy, signals potential further downgrades if the situation in Gaza deteriorates or expands. Fitch's assessment paints a sobering picture of the conflict's long-term impact, suggesting it could persist well into 2025 with risks of broader regional involvement.

"The conflict in Gaza could last well into 2025 and there are risks of it broadening to other fronts," Fitch stated, underlining the geopolitical uncertainties that influenced their decision.

The agency projects a permanent increase in Israel's military spending by nearly 1.5% of GDP compared to pre-war levels. This escalation in defense expenditure is expected to exert upward pressure on the country's budget deficit and debt burden. Fitch forecasts Israel's deficit to reach 7.8% of GDP in 2024, with debt remaining above 70% in the medium term.

Israel's Finance Minister Bezalel Smotrich characterized the downgrade as "natural" given the ongoing conflict. However, he expressed confidence in a swift recovery of Israel's credit rating once military objectives are achieved.

The downgrade reflects not only the economic toll on Israel but also the dire humanitarian situation in Gaza. The Strip has endured ten months of intense bombardment, widespread destruction of infrastructure, and severe restrictions on movement imposed by the Israeli military blockade. The conflict has pushed unemployment in Gaza to nearly 80%, with previous reconstruction efforts from earlier wars largely undone.

Recent events have heightened concerns about the conflict's potential expansion. The killing of top Hamas figure Ismail Haniyeh in Iran and a high-ranking Hezbollah commander in Lebanon last month has raised fears of the war evolving into a broader regional confrontation.

Fitch noted that these developments have led to "significant additional military spending, destruction of infrastructure and damage to economic activity and investment" in Israel.

As Israel prepares for possible retaliatory attacks, the 2 million residents of the densely populated Gaza Strip face an increasingly desperate situation. Continuous airstrikes and shelling have left civilians with nowhere to seek safety, resulting in mounting casualties and widespread destruction.

The credit rating downgrade, while significant for Israel's economic outlook, pales in comparison to the humanitarian crisis unfolding in Gaza. As the conflict enters its second year with no diplomatic solution on the horizon, the people of Gaza continue to bear the brunt of the violence, with their homes, schools, and hospitals reduced to rubble.

This financial assessment by Fitch, focused primarily on the fiscal impacts on Israel, underscores the international community's struggle to address the root causes of the conflict or to hold parties accountable for the ongoing assault on Gaza.

As the war continues with no end in sight, the future remains uncertain for the millions of civilians caught in the crossfire, their lives and aspirations buried beneath the weight of geopolitical strife and economic consequences.