Palestine Monetary Authority (PMA) Issues Economic Forecast Report, 2017

Expecting growth to slow down to 3.1 percent in 2017

The PMA has issued the Economic Forecast Report for 2017. The Report shows that despite annual real growth rates of approximately 3 percent over the past few years, a slackening trend of economic growth remains evident. This sluggishness can be attributed to a number of factors, most prominently: uncertainty and political impasse and the split between the two regions of the homeland; the Israeli-imposed measures and obstacles and their adverse impact on investor confidence;  the private sector's inability to act as an engine of economic growth; the continuing  settlement activities; the restrictions that distort economic activity in area C in the West Bank; the ongoing siege and closure of the Gaza Strip by Israel; and the closure of the Rafah Crossing, which adversely impacts the overall economic activity in the Strip.  

As for the economic outlook, despite reforms that were implemented during 2016 in many areas (like strengthening the tax management process, enhancing dialogue with the Israeli side concerning the size and regular flow of clearance revenues and the adoption by the Ministry of Finance of a program to finance government arrears through the issue of short-term promissory notes), the general situation during 2017 is expected to remain subject to political and economic uncertainty.

As for the performance of the Palestinian economy in 2017, PMA forecasts real GDP growth by 3.1 percent to about USD 8,221 million. This growth is expected to push up real per capita income (real GDP per capita) by 0.8 percent to USD 1,776. Forecasts also suggest that real GDP growth in 2017 will be primarily supported by an increase in private consumption financed by indebtedness and banking loans and a hike in the number of Palestinian workers in Israel, alongside a modest growth in gross investment, owing in particular to investment derived from the reconstruction of Gaza Strip, albeit rather slowly.

In this context, PMA forecasts a growth in 2017 in total consumption expenditure of 4.1 percent (3.7 percent for private consumption and 5.7 percent for public consumption) pushing its contribution to real GDP to 119.5 percent, consequently leading to a rise in imports. Conversely, a slight rise (0.8 percent) in total investment spending raises its share to 20.9 percent of GDP. As for the Palestinian external sector, exports are predicted to grow by 2.2 percent, and imports by 3.6 percent, the latter given a strengthening consumption. The variable increases in exports and imports would widen the trade balance deficit in 2017 by about 4.4 percent, to constitute 40.4 percent of the real GDP. It is unlikely that this predicted positive growth will exert any significantly positive impact on job opportunities and employment, with the unemployment rate in Palestine expected to continue to rise to about 27.6 percent of total labor force in 2017. 

It is worth mentioning that these forecasts remain prone to potential shocks of varying likelihoods, both negative and positive, that are likely to have effects and consequences over several key economic indicators. 

A positive shock to the economy (the optimistic scenario) presumes serious progress in the political track, security conditions and peace talks, the acceleration of reconstruction in GS; the launch of major projects and the introduction of measures to stimulate the economy, concomitant with the uplifting of the siege and closure of GS; the easing of restrictions on movement of people and goods in general; the increase in the number of Palestinians workers in Israel; a rise in donor aid inflows for budget support and development expenditure; and a rise in private sector transfers from abroad above normal annual levels. Under such assumptions, PMA forecasts indicate that the economy will grow by 7.5 percent and real per capital income by 5.1 percent. Furthermore, such a scenario is expected to have a positive impact on the unemployment rate, pushing it down to about 25.5 percent of total labor force in 2017.

In contrast, in case of a sharp deterioration in political and security conditions (the pessimistic scenario), PMA forecasts a decline of 2.8 percent in real growth compared to 2016, and a drop by 4.9 percent in the real GDP per capita. Such a scenario would adversely affect the unemployment rate, which is expected to surge to about 31.2 percent of labor force, compared to 27.3% in 2016. 

Categories: PMA, Publications