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

July brings a marked deterioration in the business cycle

The PMA has released the results of its Business Cycle Index (PMABCI) for July 2014. The results show that the overall PMABCI witnessed a marked deterioration, decreasing from 9.52 point in June to around -6.87 point this month as a result of significant contraction in both the West Bank (WB) and Gaza Strip (GS) indices, 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 declined from 16.3 point in June to around -0.82 point this month, due to the contraction in all industrial activities, except marginal improvements in the food sub-sector and traditional industries. The main driver for the drop this month is the textile sub-sector, which decreased from 3.2 point to around 0.63 during the comparison period. The contraction in the WB comes as a result of the Israeli military measures that were taken in the WB in late June, which has significantly affected the future prospects for industrial firms. Data for July revealed high pessimism about the near future comparing to both previous and corresponding month of 2013.

In GS, the index witnessed the greatest deterioration since the PMA started producing this index (November 2012). It deteriorated from -8.88 point in June to around -26.22 this month, as a result of a decline in most of industrial activities, especially the huge decline in food activity (which forms around one third of GS's industry) from 0.0 point to around -11.98 point, during the comparison period.

Since the beginning of this month, GS has suffered from a new Israeli military attack which left a large number of martyrs and injured among civilians, in addition to massive economic losses, including great damage to the infrastructure, and forced closure of firms and institutions. The attack has worsened the already deteriorated economic conditions in the strip. At the same time, the closure of ports and border crossings continued. Also, pessimism about the near future dominated among the Gazan industrial owners/managers, and is expected to continue in the coming months even after the Israeli attack ended.

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 is 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.

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