Fitch indicates durable Hezbollah ceasefire could limit pressure for further Israel downgrades

Ratings agency Fitch indicates that the ceasefire between Israel and the Lebanese terror group Hezbollah, if durable, would relieve some pressure for further credit downgrades and ease the burden on the country’s finances.

“The ceasefire, if sustained, will remove a key potential driver for increased conflict between Israel and Iran, a close ally of Hezbollah,” Fitch says. “A durable de-escalation of armed conflict between Israel and Hezbollah… could help to limit pressure on Israel’s public finance metrics.”

However, Fitch cautions that “developments in Gaza and with Iran will still play an important role in determining Israel’s fiscal and economic trajectory.”

The credit ratings agency says it expects the war in Gaza to continue into 2025.

“This implies continued elevated spending on immediate military needs, and disruption to production in the border areas, as well as to tourism and construction,” Fitch comments.

In August Fitch downgraded Israel’s credit rating from A+ to A, and kept the rating outlook negative, warning that a further downgrade was possible in case of a “lengthening and/or widening of the conflict that would have a material and prolonged impact on the economy and public finances.”