Heightened tensions between Israel and Iran could incur ‘significant additional military spending’ for Israel, further straining its finances.
Parts of Israel's economy have taken a significant hit as the war in Gaza rages on [File: Amir Cohen/Reuters
Last week, Fitch Ratings downgraded Israel’s credit score from A+ to A. Fitch cited the continued war in Gaza and heightened geopolitical risks as key drivers. The agency also kept Israel’s outlook as “negative”, meaning a further downgrade is possible.
After Hamas’s deadly attack on October 7, Israel’s stock market and currency nosedived. Both have since bounced back. But concerns about the country’s economy persist. Earlier this year, Moody’s and S&P also cut their credit ratings for Israel.
So far, Israel’s war on Gaza has killed more than 40,000 Palestinians and decimated the economy in the besieged Palestinian enclave.
There are signs of a blowback in Israel, too, where consumption, trade and investment have all been curtailed.
Separately, Fitch warned that heightened tensions between Israel and Iran could incur “significant additional military spending” for Israel.
The Bank of Israel has estimated that war-related costs for 2023-2025 could amount to $55.6bn. These funds will likely be secured through a combination of higher borrowing and budget cuts.
The upshot is that combat operations are putting a strain on the economy. On Sunday, Israel’s Central Bureau of Statistics estimated that output grew by 2.5 percent (at an annual rate) in the first half of 2024, down from 4.5 percent in the same period last year.
Comments