More pressure piling up for Netanyahu as 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.
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.
According to the business survey company CofaceBDI, roughly 60,000 Israeli companies will close this year due to manpower shortages, logistics disruptions and subdued business sentiment. Investment plans have, in turn, been delayed. Meanwhile, the war has triggered a steep rise in government spending. According to Elliot Garside, a Middle East analyst at Oxford Economics, there was a 93 percent increase in military expenditure in the last three months of 2023, compared to the same period in 2022. “In 2024, monthly data suggests military expenditure will be around double the previous year,” Garside said. Much of that increase will be
used on reservist wages, artillery, and interceptors for Israel’s Iron Dome defence system. Absent a full-scale regional war, Oxford Economics anticipates that Israel’s economy will slow to 1.5 percent growth this year. Subdued growth and elevated deficits will put further pressure on Israel’s debt profile, which will likely raise borrowing costs and soften investor confidence.
Al Jazeera
War is Hel...and very, very expensive.
