The rating agency pointed to the prolonged conflict, heightened geopolitical risks, and military operations on multiple fronts as key factors behind the downgrade.

Analysts at Fitch expressed concerns that the Gaza conflict, which has already strained Israel's economy, could continue until 2025 and potentially expand to other fronts. The agency warned that increased military spending, human losses, infrastructure damage, and ongoing economic and investment disruptions could lead to further deterioration in Israel’s credit standing.

Fitch forecasts that Israel's budget deficit will reach 7.8% of GDP this year, a significant increase from 4.1% in 2023. Public debt is expected to remain above 70% of GDP in the medium term, reflecting the fiscal challenges posed by the conflict.

In July, Israel reported a 12-month budget deficit of 8.1% of GDP, up from 7.7% the previous month. Finance Minister Bezalel Smotrich described the conflict as the longest and most economically costly in Israel's history, emphasizing its existential nature.

In addition to the financial strain, Tel Aviv has dropped 17 places in Henley & Co's 2024 richest cities ranking, now standing at 47th. The city has seen a 12% decrease in millionaires, with approximately 300 investors with liquid assets of $1 million or more leaving Tel Aviv last year. The city now counts 10 billionaires, 82 individuals with over $100 million, and 24,300 millionaires. (ILKHA)