International credit ratings agency Fitch is concerned that the current “Iron Swords” War in Gaza could harm Israel’s economy. As such, Fitch placed Israel’s A+ long-term foreign and local currency Issuer Default Ratings (IDR) on Rating Watch Negative (RWN), which means the firm is warning investors to be prepared for the possibility of trouble ahead for Israel.
Fitch also placed the short term foreign and local currency IDRs of F1+ and the issue ratings of A+ on Israel’s long term foreign currency senior unsecured bonds have also been placed on RWN.
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The move comes as the New Israel Shekel fell to an eight year low on Tuesday, dropping below the four Shekels to the USD mark. The Shekel had dropped considerably against foreign currencies since the start of the year due to concerns over domestic political stability held by world investors. But the rate of the Shekel’s decline increased sharply since the start of the fighting in Gaza last week.
In August, Fitch reaffirmed Israel’s ‘A+’ sovereign credit rating while giving the country’s economy a “stable” outlook. But at that time, the only concern the financial world had about Israel was the domestic instability and turmoil caused by Benjamin Netanyahu’s government’s controversial planned judicial reforms. Now, investors and financial markets around the world are concerned that the fighting in Gaza could expand and then cause another worldwide financial crisis.
“The RWN reflects the heightened risk of a widening of Israel’s current conflict to include large scale military confrontations with multiple actors, over a sustained period of time,” wrote Fitch. “This could include Hezbollah, other regional militant groups and Iran. While not our base case, such large-scale escalation, in addition to human loss, could result in significant additional military spending, destruction of infrastructure, sustained change in consumer and investment sentiment and thus lead to a large deterioration of Israel’s credit metrics.”
“In our view,” added Fitch, “the combination of Israel’s dynamic, high-value added economy, the record of resilience to regional conflict, preparedness for military confrontations, solid fiscal and external metrics and cash buffers make it unlikely a relatively short conflict largely confined to Gaza will affect Israel’s rating.”
