PMA Publishes the Economic Developments Report, 2015 Q1

Ramallah, August 17, 2015

The PMA published the Economic Developments Report, 2015Q1, which reviews the latest economic developments at the local, regional and global levels. The report points to the persistent decline in Palestinian economic performance, with GDP shrinking by about 0.8 percent below the corresponding quarter in 2014, as a result of weak economic performance in both the West Bank and Gaza Strip. In the West Bank, growth decelerated to around 1.8 percent on annual basis, mainly owing to the financial crisis facing the Palestinian government, which, could neither meet its payroll obligations nor pay off accumulated arrears owed to the private sector. As for Gaza Strip, the repercussions of the recent Israeli aggression continued to weigh heavily on the economy, causing its GDP to shrink for three quarters in a row, including by a hefty 8.2 percent in 2015Q1. This downturn reflected weakening overall output and a sluggish recovery of the major productive activities in the Strip. 

Although a somewhat moderating economic recession in WBG in 2015Q1 led to a relative drop in unemployment rates, these rates remained extremely high, especially in Gaza Strip. In the West Bank, the unemployment rate dropped slightly to 16.3 percent, down from 17.4 percent in the previous quarter. In comparison, the unemployment rate in Gaza Strip fell back to 41.6 percent from 42.8 percent in the previous quarter, but remained higher than in the corresponding quarter in the previous year (40.8 percent).

Also, fairly disparate economic and political developments in the West Bank and Gaza Strip led to somewhat divergent inflation rates in the two regions. While the West Bank witnessed deflated prices owing to the decline in global prices of basic goods, prices in Gaza Strip continued to experience inflationary pressures due to the ongoing shortage in consumer goods. Reflecting these divergent regional price trends, the Consumer Price Index in Palestine increased slightly (by less than 0.6 percent) compared with the corresponding quarter in 2014.

Government finances experienced an acute shock as the Israeli authorities withheld the clearance revenues for several months in response to the Palestinian Authority's move to join the International Criminal Court (ICC). As a result, total public revenues and grants dropped by about one third in 2015Q1, compared with the corresponding period of the previous year; in comparison, public expenditures dropped by a much lower rate (13.3 percent) over the same period. In consequence, the overall deficit (before grants) rose to NIS 1,112.9 million. Although foreign aid helped to narrow the deficit gap, an overall deficit (after grants) of NIS 265.3 million (representing 2.3 percent of nominal GDP) emerged in 2015Q1, compared to a surplus in both the previous and the corresponding quarters of 2014.

As for the banking sector, the war-related disruptive changes which impacted the Palestinian economy took their toll on the sector's overall performance. For instance, growth of bank assets/liabilities slowed down to 4.1 percent on annual basis compared with 5.6 percent in the previous quarter, despite the relative acceleration in growth of credit facilities which account for the bulk of bank assets. The slowdown reflected the drop in banks' placements abroad, investment and cash. It is worth noting that growth in credit facilities outstripped GDP growth, indicating a rise in the level of available liquidity. On the liabilities side, customers’ deposits witnessed further slowdown, as did the growth in ownership equity.

To view the full report, please click here.