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Source: United Nations Special Coordinator for the Middle East Peace Process (UNSCO)
5 July 2017

UNSCO Socio-Economic Report:
Overview of the Palestinian Economy in Q1/2017

Economic Activity

Real GDP in the occupied Palestinian territory (oPt) in Q1/2017 remained virtually unchanged from the previous quarter because of no growth in West Bank and a 0.3% growth in the Gaza Strip. Compared to Q1 2016, real GDP in the oPt grew by 0.7% driven by a 0.8% growth rate in the West Bank and a 0.4% growth rate in the Gaza Strip. In Q1/2017 the Gaza economy constituted about 24.7% of the overall Palestinian economy, signifying no significant change from the previous quarter, and the Strip's real GDP per capita was 46% of the West Bank's.

In the West Bank, between Q1/2016 and Q1/2017 there was significant expansion in real value added in the transportation and storage sector (8.4%) and the financial and insurance activities (11.4%). There was significant contraction in real value added in agriculture, forestry and fishing (-15.9%), construction (-19.9%) and wholesale and retail trade (-8.7%).

During the same period in the Gaza Strip, the transportation and storage sector grew by 33.3%, wholesale and retail trade, repair of motor vehicles and motorcycles by 17.5%, and financial and insurance activities by 9.7%. Significant contraction was observed in agriculture, forestry and fishing (-25.7%), and construction (-19.9).

The services sector was the largest one in the West Bank economy in Q1/2017, accounting for 19.1% of GDP. This was followed by the wholesale and retail trade sector (17.0%) and mining, manufacturing, electricity and water (16.1%).

Public administration and defense continued accounting for the largest proportion (30.8%) of the Gaza Strip's GDP in Q1/2017, followed by services (26.3%), and wholesale and retail trade (17.3%).

Final consumption in the West Bank was 110.6% of GDP in Q1/2017. Household final consumption constituted 88.3% of GDP while government final consumption was 20.5% of GDP. Gross capital formation accounted for 26.3% of GDP, most of it gross fixed capital formation (23.8% of GDP). Exports of goods and services from the West Bank made up 27.0% of GDP while imports represented 64.6%, resulting in a West Bank trade deficit of 37.6% of GDP in the quarter.

In the Gaza Strip, final consumption in Q1/2017 was 127.8% of GDP, household final consumption was 76.1% of GDP and government final consumption was 39.4% of GDP. Gross capital formation was 7.6% of GDP, and gross fixed capital formation, 15.8% of GDP. A significant drawdown of inventories countered explains why gross fixed capital formation was higher than gross capital formation. Exports from the Gaza Strip amounted to 4.1% of GDP while imports amounted to 37.1%, resulting in a trade deficit equal to 33.1% of GDP in Q1/2017.

Activity in mining and quarrying declined in January and recovered thereafter. Electricity, gas, steam and air conditioning grew robustly in January but then contracted in February and March. Activity in water supply, sewage, waste management and remediation fluctuated during the quarter, with significant decline in February.

Current account and trade

The current account deficit decreased to (-) $302.8 million in Q1/2017 from $365.1 million (11% of GDP) in Q4/2016. The improvement was driven by improved trade balance (goods and services) as well as increases in the income balance, countered by a decline in net transfers.

Exports continued to be mainly destined to Israel. Similarly, the majority of imports continued to come from Israel.

Truckloads exported out from the Gaza Strip declined in Q1/2017 after recovering somewhat in Q4/2016. Only 24 truckloads were exported compared with 69 truckloads in Q4/2016. Commercial transfers to the West Bank nearly doubled in Q1/2017 with 803 truckloads leaving the Gaza Strip for the West Bank compared with 409 truckloads in the previous quarter. Products largely consisted of produce.

Some 167 truckloads existed to Israel in Q1/2017 compared with 187 truckloads in the previous quarter.

The private sector

The total area licensed for new construction in the West Bank in Q1/2017 was 9.4% lower than in Q1/2016. In the Gaza Strip, total area licensed for new construction was 8.4% lower than in Q1/2016.

There was an 4.4% increase in the total number of new company registrations in the West Bank in Q1/2017 compared to the same period last year. In the Gaza Strip the number was 50.4% lower as compared with Q1/2016.

The labour market

The labour force participation rate in Q1/2017 was 45.8% of those aged 15 and above. Thus the labour force consisted of 1,368,900 people. The labour force participation rate was similar in the West Bank (45.8%) and the Gaza Strip (45.7%). Participation in the labour force was much higher for men than for women in both regions. The labour force participation rate was relatively lower for youth, particularly those aged between 15 and 19 years of age (18.4% and 15.0% in the Gaza Strip and West Bank respectively).

The unemployment rate for Palestine increased marginally to 27.0% in Q1/2017 from 26.6% in Q1/2016. The unemployment rate in the West Bank was 18.8%, a marginal increase from 18.0% in Q1/2016. In the Gaza Strip, 41.1% of the labour force was unemployed in Q1/2017, similar to a year ago.

Unemployment rates for women were higher than men in both the Gaza Strip (67.4% as compared with 32.7% for men) and West Bank (31.2% as compared with 15.9% for men) despite their low labour force participation rate. Refugees had a higher unemployment rate than non-refugees in both the West Bank and Gaza Strip, though the difference was more stark in the Gaza Strip. Unemployment rates were higher for youth than for those above 30. Some 61.7% of 20-to-24-year-olds in the Gaza Strip, for example, were jobless - the highest rate of any age group in either region.

The average period of unemployment in Q1/2017 compared to Q4/2016 increased by 0.3 month for men and decreased by 1.0 months for women in the West Bank. In Gaza, the period increased by 1.5 months for men and 6.2 months for women. On average women were likely to remain unemployed 6.9 months longer than men in the West Bank and 15.3 months longer than men in Gaza.

The number of persons employed in the West Bank in Q1/2017 was higher than that in Q1/2016 by approximately 18,100. In the Gaza Strip, it was higher by 7,100. In the West Bank job losses were recorded in agriculture, fishing and forestry and commerce restaurants and hotels. Mining, quarrying, manufacturing and construction sectors saw significant job growth. In the Gaza Strip, job losses were concentrated in agriculture forestry and fishing, while transportation, storage, communication, commerce, restaurants and hotels saw some job growth.

In Q1/2017, there continued to be a significant disparity in average daily net wages between the West Bank and the Gaza Strip. While men in the Gaza Strip received an average daily wage of NIS 56.7 in Q1/2017, they received on average a daily rate of NIS 103.6 in the West Bank. Similarly, while women in the Gaza Strip made a daily wage of NIS 71.0 on average, women in the West Bank made a daily wage rate of NIS 94.4. Further, the average daily net wage rate was higher for men than for women in the West Bank unlike in Gaza where women had significantly higher daily wage rates.

The public sector offered considerably higher average daily wages than the private sector in both regions, although average wages in Israel and Israeli settlements in the West Bank remained the highest at NIS 219.5 per day.

Consumer prices

Average prices, as measured through the Consumer Price Index (CPI), increased moderately across Palestine in Q1/2017 compared to both Q4/2016 and Q1/2016.

The banking sector

Bank credit in Q1/2017 increased to $7.2 billion. Loans accounted for 81.7% of bank credit, followed by overdrafts (17.7%) and leasing (0.6%).

The private sector continued to be the main source of bank deposits in Q1/2017 accounting for 80.0% of the total.

The credit-to-deposit ratio at 65.0% was marginally higher than that Q4/2016 (64.8%).

Fiscal operations

On commitment basis, by the end of Q1/2017, government total net revenue was 25.0% of the budgeted NIS 13.8 billion for 2017. Total expenditure was 22.9% of the NIS 16.1 billion in the budget for the year. At the end of the first quarter, the current deficit and the overall deficit had reached 9.4% and 10.4% of the annual projected amounts, respectively. External budgetary support by the end of the quarter reached 32.8% of the amount expected for the year.

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