Ramallah, 7 March 2015
The PMA issued the Economic Developments Report for 2014Q3, which reviews the latest developments at the local, regional and international levels. The report points to a noticeable decline in real growth, which fell to -7.4 percent in 2014Q3, compared to the corresponding quarter of 2013, affected by the performance of both the West Bank and the Gaza Strip. In the West Bank, growth has relatively decelerated to 1.5 percent on annual basis, as a result of slowdown in the growth of public consumption and investment against a rise in imports. As for the Gaza Strip, the economic consequences of the last Israeli aggression were quite stark. Real growth has contracted to -31.9 percent as a result of the economic shutdown of numerous sectors, the damage inflicted on the production base, and the persistent strangling siege and restrictions on the entry of basic goods into the Strip.
This performance has impacted unemployment rates, which rose further to troubling and unprecedented levels, which reached in Gaza Strip 47.4 percent in comparison to 44.5 percent in 2014Q2. Likewise in the West Bank, driven by production slowdown, unemployment rate rose to 19.0 percent compared to 16.1 percent in 2014Q2. As for price levels, two distinct paths can be discerned: a decelerated inflation in the West Bank to about 0.7 percent compared to the corresponding quarter in 2013, as a result of a decline in prices of food products and transport services, against a marked acceleration in inflation to reach 5.4 percent in the Gaza Strip, where the siege and shortage of basic goods during the war have markedly affected prices of food products, medical services, housing and housing necessities, tobacco and alcoholic beverages. As such, overall inflation rate in Palestine rose to 2.3 percent on annual basis compared to 1.9 percent in Q2 of the same year.
On a different note, government finance witnessed unusual developments during 2014Q3. Net public revenue grew by around 38.7 percent compared with the corresponding quarter of 2013 as a result of the government receiving advance payment of clearance revenues which outweighed the decline in tax revenues by around 8.1 percent. However, the hike in public expenditures by around 23.5 percent (due to payment of public employees' salaries in advance of the feasts, in addition to the rise in transfers by around 41.5 percent) has pushed up current deficit to around 4.0 percent compared to the corresponding quarter of 2013. On the other hand, despite a distinct surge, foreign aid remained 0.6 percent lower than in the corresponding quarter of 2013. Yet, it was sufficient to transform overall balance deficit to a surplus of NIS 387.7 million, equivalent to 11.1% of GDP.
The banking sector's performance reflected the sudden developments in the Palestinian economy. Thus, growth of bank assets/liabilities slowed down to 8.3 percent in 2014Q3 compared to the same period of 2013, following the slowdown in growth of the credit facilities portfolio to 10.1 percent compared to 15.5 percent in Q2. Likewise, customer deposits grew by around 8.6 percent compared to 12.0 percent in Q2, whilst ownership equity (net) maintained growth at 7.8 percent for the second consecutive quarter. It is worth noting that growth in credit facilities outstripped the GDP growth, indicating a deepening interlinkage between the banking sector and the Palestinian economy. On a related note, results of stress testing conducted by the PMA on the quarterly financial statements for all banks operating in Palestine have indicated the robustness of the banking sector in general.