The Monthly PMA Business Cycle Index (PMABCI) – August 2014
August Brings a Severe Deterioration in the Business Cycle
The PMA has released the results of its Business Cycle Index (PMABCI) for August 2014. The results showed that the overall PMABCI witnessed a severe deterioration, decreasing from -6.9 point in July to around -35.5 point in August. Such deterioration represents the biggest contraction ever, because of shrinkage in Gaza Strip (GS) performance, along with a huge decline in the West Bank (WB), compared to the previous month, and to the corresponding month of 2013 (see the attached figure).
In GS, the index witnessed the greatest deterioration since the PMA started producing this index (November 2012). It deteriorated from -26.2 point in July to around -78.1 point this month, because of the devastation in all sectors' performances due to the Israeli military attack. The attack resulted in wide destruction of the infrastructure and many economic institutions, industries and firms; the non-destructed firms were forced to stop their operations. Pessimism about the near future is dominant among the Gazan industrial owners/managers, recording its highest level ever this month; pessimism is expected to persist in the coming months even after the Israeli aggression ended.
In the WB, the business cycle index declined from -0.8 point in July to around -20.6 point in August, due to the contraction in all industrial activities, except marginal improvements in the leather and construction sub-sectors. Data revealed significant decline in production and employment levels, especially in textile sub-sector, which contracted to -3.2 point this month, compared to 0.6 point in July. In addition, the food sub-sector index declined to -5.4 point compared to 3.8 point in July.
The contraction in the WB largely reflected increased uncertainty in the political and security conditions due to the Israeli aggression. The Israeli attach has significantly affected the future prospects for industrial firms. Data of August revealed the highest pessimism about near future since the PMA started producing the index.
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.