The Monthly PMA Business Cycle Index (PMABCI) – February 2015

A decline in the index

The PMA has released the results of its Business Cycle Index (PMABCI) for February 2015. The results showed that the overall PMABCI witnessed a decline to around 2.4 points in February, compared to 3.9 points in both the previous and corresponding months. This decline reflected a significant drop in the index of Gaza Strip (GS), with a relative decline in the West Bank (WB) also. 

In the WB, the index has relatively worsened from around 4.5 points during January, to around 3.3 points this month. This reduction reflected varying performance of the various industrial sub-sectors. On one hand, the textile sub-sector fell sharply, while leather, paper, chemical, and engineering sub-sectors also dropped but to a lesser degree. On the other hand, all other sub-sectors have rebounded.

It is worth to note in this regard that the WB economy witnessed for the second consecutive month a decline in aggregate demand, which adversely affected the production level. This decline is attributed to the partial payment of the public sector salaries for the second consecutive month, due to Israel's withholding of clearance revenues. This heightened expectations of negative effects on future prospects among industrial firm owners. Nevertheless, some industrial firm owners (particularly in the food and textile sub-sectors) expressed modest optimism about the near future in expectation of a reduction in production costs as oil prices continue to decline. 

In GS, the index has sharply dropped to around -12.8 points during February, compared to a recovery in the previous month when the index improved to -3.0 points. As it is the case in the WB, industries have shown varying performances, but most of them have notably fallen. The reductions in the food and construction sub-sectors were the highest contributors to deterioration of GS's overall index. The food index has dropped from 6.8 points to around 0.0 points. At the same time, construction index fell from -13.8 points to -20.9 points. Likewise, chemical, engineering, and plastic sub-sectors have also fallen in the same period, while the recovery in textile, paper and furniture sub-sectors was marginal. It is noteworthy that construction is deteriorating for the third consecutive month due to Israel's barring the entry of needed building materials.

As a result, pessimism about the near future has expectedly increased again in GS as firm owners shared apprehension about production levels in the coming months. These fears were based on the continued electricity and fuel crises in GS, in addition to a prolonged delay in fulfilling commitments towards the reconstruction of Gaza, the lifting of the blockade, and opening Rafah crossing border. Furthermore, there were concerns about a drop in private consumption given the abovementioned disruption of public servants salaries.

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 tracking the performance of the industrial sector, especially fluctuations in production and employment levels and their 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. Afterwards, the data is processed to construct a quantitative PMABCI.

It is also 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 is, the better the economy. Similarly, 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.