Israel credit rating downgraded by Fitch

Fitch Ratings has downgraded Israel's credit rating from A+ to A, citing a "negative" outlook due to the ongoing conflict in Gaza. The agency predicts that the war could extend into 2025, with potential risks of escalation. Israel's budget deficit is projected to rise sharply to 7.8% of GDP in 2024, up from 4.1% in 2023, driven by increased military expenditures and the relocation of citizens from northern regions. Although the deficit may decrease to 4.6% in 2025, Fitch warns that this could change if the conflict persists. The economic impact of the war has been significant, with Israel's debt-to-GDP ratio expected to remain high at 70% this year and 72% in 2025. Despite these challenges, some investors are still showing confidence in Israel's economy, particularly in the tech sector, which saw a 31% increase in private funding in the first half of the year, totaling $5.1 billion. However, analysts caution that the ongoing conflict complicates capital raising and business growth. In response to the downgrade, Israeli Finance Minister Bezalel Smotrich acknowledged the challenges posed by the war but emphasized the resilience of the economy. He noted that the U.S. is set to provide $3.5 billion in military aid, which could help stabilize the situation. Fitch indicated that a de-escalation of hostilities and fiscal reforms could improve Israel's credit rating in the future.