10 months & counting: How long will Israel-Hamas war last? Fitch has answer

Gaza war: The leaders of France, Germany, and Britain have jointly endorsed the latest efforts by the United States, Qatar, and Egypt to broker an agreement to end the 10-month Israel-Hamas war

Credit ratings agency Fitch on Monday warned that the 10-month Israel-Hamas war in Gaza could last well into 2025 and downgraded Israel's credit rating from A+ to A, citing the worsening geopolitical risks amid the continuing conflict in Gaza, reported the Times of Israel.

Indicating a potential for further downgrades, Fitch also maintained a negative rating outlook. According to the report, the agency said, "In our view, the conflict in Gaza could last well into 2025 and there are risks of it broadening to other fronts."

 

In response, Israeli Finance Minister Bezalel Smotrich reportedly downplayed the credit rating downgrade as a "natural" consequence of war. Smotrich also asserted that Israel's economy would recover thanks to responsible measures that he was going to implement.

The downgrade of Israel's credit rating comes amid increasing concerns of a wider West Asia (Middle East) conflict, after the killing of Hamas leader Ismail Haniyeh in Iran and top Hezbollah military commander Fuad Shukr in Beirut late last month.

Fitch also noted that the heightened tensions between Israel and Iran and its allies could lead to significant additional military spending, destruction of infrastructure, and damage to investment and economic activity. After S&P and Moody's, Fitch is the third global credit agency to lower Israel's credit rating since the outbreak of the conflict.

According to the report, Fitch expects Israel to permanently increase military spending by close to 1.5 per cent of gross domestic product (GDP), compared to the pre-war levels, to strengthen border defences.

"Public finances have been hit and we project a budget deficit of 7.8 per cent of GDP in 2024, with debt remaining above 70 per cent of GDP in the medium term," Fitch said. According to the agency's forecast, Israel's debt would continue to rise beyond 2025 if higher military spending and economic uncertainties continued.

Fitch added that the other factors contributing to the downgrade were Israel's "political fractiousness, coalition politics, and military imperatives" that put new fiscal consolidation measures at risk.

In April, Fitch had removed Israel from a "credit rating negative" status and affirmed the country's A+ credit rating, but with a negative outlook, citing uncertainty about the Gaza war's duration and impact on the Israeli government's debt.

In response to the downgrade, the Israeli Finance Ministry's top accountant, Yali Rothenberg, urged the government to create as much certainty as possible for the Israeli economy, investors, and ratings agencies by promptly formulating a responsible state budget for 2025.

A day after the downgrade, the Associated Press reported on Tuesday that the leaders of France, Germany, and Britain have jointly endorsed the latest efforts by the United States, Qatar, and Egypt to broker an agreement to end the 10-month Israel-Hamas war. They also called for the return of the hostages held by Hamas and the "unfettered" delivery of humanitarian aid.

Tensions in West Asia have escalated significantly following the killing of Shukr and Haniyeh, but the region has been in turmoil since October 7, when Hamas launched an unprecedented cross-border attack on Israel, resulting in the deaths of approximately 1,200 people and the capture of 251 hostages.

In response, Israel launched an offensive against Hamas in the Gaza Strip, aiming to destroy the militant group's military and governing capabilities. According to the Hamas-run health ministry, 39,929 people have been killed in the Strip and 92,240 wounded in the fighting so far.