PMA Issues its Economic Developments Report for Q4 2015

The PMA has issued the Economic Developments Report for Q4 2015, which reviews the latest developments at the local, regional and international levels. The Report brings to light the renewed slowdown in the Palestinian economy, with real gross domestic product growing by about 6.1 percent on annual basis, compared to 9.6 percent for Q3 of the same year, affected by the decelerating performance of both the West Bank and Gaza Strip. In the West Bank, growth has decelerated to 1.0 percent y-o-y, compared to about 4.0 percent in the previous quarter, amidst amplified political tension and the recent popular uprising the beginning of Q4. As for Gaza, growth slowed to about 24.7 percent y-o-y from about 33.3 percent in Q3. Yet, these figures reflect an improvement in economic conditions as opposed to the aftermath of the most recent war on the Strip. 

In spite of the fact that economic growth had an alleviating contribution, unemployment rates remained high, particularly in Gaza. In light of recent growth, GS unemployment rates fell from 42.7 per in Q3 to 38.4 percent in Q4 2015. In the West Bank, however, unemployment rates hovered around 18.7 percent for the second consecutive quarter. The rate also remained higher than levels recorded for the corresponding quarter of 2014 at around 17.4 percent. Overall, unemployment in Palestine fell to 25.8 percent during Q4, compared to 27.4 percent in the previous quarter. 

On a different front, Q4 2015 brought additional inflationary pressures, resulting in an accelerating growth in prices. As such, growth in the Consumer Price Index in Palestine reached about 1.5 percent y-o-y, compared to 0.9 percent for the previous quarter, owing to a jump inflation from about 1.6 to 2.1 percent in the WB, and from a negative 0.1 percent to 2.0 percent positive growth in prices in GS.

Government finance items witnessed several developments associated with the inflow of foreign aid and grants and the composition of current expenditures, which consequently augmented the deficits in the current balance and overall balance; both before and after grants by end of Q4 2015. Total net revenues and grants receded by about 13.6 percent y-o-y, due to a decline of grants and aid extended to the Palestinian government by about 44.4 percent, whereas public expenditures surged by around 23.2 percent during the same period, owing to an increase in salaries and wages and non-wage expenditures, rising by about 7.5 percent and 55.0 percent, respectively. Overall, the current deficit doubled over the comparison period from NIS 607.5 million to NIS 1,199.9 million. Is spite of foreign aid’s contribution to bridge a large part of this gap, the overall balance after grants stood at a deficit of NIS 718.7 million for Q4 2015. 

As for the banking sector, the year 2015 closed with a performance that was its best since mid-2014. Assets/liabilities of banks operating in Palestine grew by about 6.6 percent y-o-y, compared with 4.6 percent in the previous quarter, to reach about USD 12.3 billion. This acceleration comes as a result of a similar trend in growth in credit facilities, in addition to a pronounced increase in cash, investments and fixed assets, despite the decline in total balances (with the PMA and commercial banks) and other assets over the comparison period. It is worth mentioning that growth in credit facilities continue to outstrip growth in GDP, having recorded a rate of about 19.1 per cent y-o-y to reach about USD 5.5 billion. This reflects the robustness of the banking system and the high levels of available liquidity. At the liabilities’ side, customer deposits relatively picked up pace, growing at a rate of 8.1 percent y-o-y during Q4 2015 as opposed to 7.0 percent in the previous quarter, to reach about USD 9.7 billion.