The PMA Monthly Business Cycle Index (PMABCI) – June 2014

June brings a remarkable improvement in the business index

The PMA has released the results of its Business Cycle Index (PMABCI) for June 2014. The PMABCI is a monthly index which aims to capture the state and evolution of economic activity in Palestine by noting performance of the industrial sector, especially fluctuations in the production and employment levels and implications for the economy at large. The construction of the indicator is based on qualitative data obtained from monthly business surveys of a representative sample of industrial institutions’ owners/mangers as to the value of various leading indicators during a specified period, and their expectations for the coming months. After that, the data is processed to construct a quantitative PMABCI.

During June, the overall PMABCI witnessed a remarkable improvement, increasing from -4.3 point in May to around 9.5 point this month, mainly as a result of significant improvement in the West Bank (WB) index, in addition to a relative increase in Gaza Strip (GS) index, compared to the previous month, as well as to the corresponding month of 2013 (see the attached figure).

In WB, the business cycle index has picked up from -3.4 point in May to around 16.3 point this month, due to the improvements in all industrial activities, mainly the food and textile sub-sectors. The food index increased from -1.4 point to around 2.1 point, while the textile index increased from -0.6 point to around 3.2 point during the comparison period. This improvement comes as a result of announcing the Palestinian reconciliation agreement at the beginning of June, after around seven years of Gaza-West Bank internal schism. Also, the agreement has positively affected the future prospects for industrial firms. Data of June revealed higher optimism about near future comparing to both previous and corresponding month of 2013. 

In GS, the index relatively improved this month to -8.9 point, compared to -12.1 point in May. This improvement is supported by the improvement in food sub-sector (which forms around one third of GS's industry) from -3.4 point to around 0.0 point, in addition to improvements in the furniture, and plastic sub-sectors, during the comparison period.

Despite deteriorating economic, political and security conditions in Gaza strip, as a result of the political tensions with Egypt and the Israeli siege, the positive news about the reconciliation agreement has succeeded to stop further deterioration in GS's index. However, it wasn't enough to raise the optimism level about future, and hence, pessimism is still dominant. Also, it is worthy to note that the positive influence of the reconciliation agreement has been clearer in the WB than GS, as revealed by the current index and index of future expectations. This could be mainly attributed to doubts among Gazans about the policy makers' capabilities after the reconciliation to ease the current Israeli measures, not to mention the possibility of more Israeli closures and siege as a result of such reconciliation.

It is important to note that the maximum value of the PMABCI is positive 100 point, while the minimum is minus 100 point; a positive value indicates favorable economic performance, and the bigger this value, the better the economy is. But a negative value indicates that economic performance worsens the closer this value approaches minus 100. On the other hand, a value close to zero indicates that economic performance did not change and is unlikely to do so in the near future.