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

September brings a further deterioration in the business cycle

The PMA has released the results of its Business Cycle Index (PMABCI) for September 2014. The results showed that the overall PMABCI witnessed a further deterioration, decreasing from -35.5 point in August, to around -36.1 point during September. Such deterioration comes due to shrinkage in Gaza Strip (GS) performance, along with another decline in the West Bank (WB), compared to the previous month, and to the corresponding month of 2013 (see the attached figure). Such deterioration represents the biggest contraction ever, since starting compiling the index in November 2012, due to the Israeli attack on Gaza Strip.

In the WB, the business cycle index has witnessed another decline from -20.6 point in August to around -21.3 point this month, due to the contraction in all industrial activities, except for an improvements in the food sub-sector, which can be attributed to the Israeli products boycott campaign that intensified substantially since the attack on Gaza. From another side, data showed also a significant decline in production and employment levels, especially in the textile sub-sector which contracted from -3.2 point in August to around -5.7 point this month.

The contraction in the WB comes due to the continuation of uncertainty surrounding the political and security conditions after the Israeli attack on GS. These developments have significantly affected industrialists' future outlook, where data for September revealed a high pessimism level about near future, despite the minute improvement comparing to the previous month.

In GS, the index witnessed further deterioration during September, which considered the highest contraction since the PMA started producing this index in November 2012. The index deteriorated from -78.1 point in August to around -82.6 point this month, due to the devastation in all sectors' performance due to the Israeli military attack in the last two months. The attack resulted in wide destruction of the infrastructure and economic institutions, industries and firms, and forced the non-destructed firms to halt their operations. Some estimates indicate that around 419 industrial firms were totally or partially destroyed due to the Israeli assault[1].

The Israeli assault came amid deteriorated economic, political and security conditions in the strip, especially because of blockade and closure of border crossings. In addition there was a decline in citizens' demand and purchasing power, forcing them to confine their purchases to necessities only.  However, lifting the blockade and opening crossings remain the most important and the vital factor in rebuilding GS, through entrance of raw material, particularly for construction purposes. However, unless progress is made in this respect, doubts about the ability to recover will deepen, raising the level of pessimism about the future. September data exposed the highest level of pessimism among industrial owners/mangers since starting producing this index in November 2012. Pessimistic expectations would continue at the same level in coming months, especially if the siege and opening border crossings stall.

It is worth to note that 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 processed to construct a quantitative PMABCI.

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.