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

UNSCO Socio-Economic Report:
Overview of the Palestinian Economy in Q3/2016

Economic Activity

Real GDP in the occupied Palestinian territory (oPt) in Q3/2016 was 0.4% less than in Q2/2016, driven by a 2.0% growth in the Gaza Strip and countered by a 1.1% contraction in the West Bank. Compared to Q3 2015, real GDP in the oPt grew by 5.2% driven by a 3.9% growth rate in the West Bank and a 9.7% growth rate in the Gaza strip. In Q3/2016 the Gaza economy constituted about 24% of the overall Palestinian economy, signifying no change from the previous quarter, and the Strip's GDP per capita was 50% of the West Bank's, up from 44% of the West Bank's in the last quarter.

In the West Bank, between Q3/2015 and Q3/2016 there was significant expansion in real value added in the transportation and storage sector (22.3%) and the financial and insurance activities. There was significant contraction in real value added in agriculture, forestry and fishing (13.7%) and construction (4%) sectors.

During the same period in the Gaza Strip, the agriculture, forestry and fishing sectors contracted by 11.1%. The construction sector grew by 67.2%, financial and insurance activities by 17.6% and services by 10.2%.

The services sector was the largest one in the West Bank economy in Q3/2016, accounting for 19.2% of GDP. This was followed by the wholesale and retail trade sector (17.5%) and mining, manufacturing, electricity and water (15.8%).

Public administration and defense continued to be the largest employers of people in Gaza, also accounting for the largest proportion of the Gaza Strip's GDP in Q3/2016, accounting for 31.6% of the total, followed by services (26.2%), and wholesale and retail trade (15.9%).

Final consumption in the West Bank was 117.2% of GDP in Q3/2016. Household final consumption constituted 94.5% of GDP while government final consumption was 20.8% of GDP. Gross capital formation accounted for 23.4% of GDP, most of it gross fixed capital formation (21.2% of GDP). Exports of goods and services from the West Bank made up 25.2% of GDP while imports represented 64.8%, resulting in a West Bank trade deficit of 39.6% of GDP in the quarter.

In the Gaza Strip, final consumption in Q3/2016 was 129.5% of GDP, household final consumption was 75.0% of GDP and government final consumption was 42.3% of GDP. Gross capital formation was 6.1% of GDP, and gross fixed capital formation, 18% of GDP. Exports from the Gaza Strip amounted to 3.7% of GDP while imports amounted to 37.6%, resulting in a trade deficit equal to 33.9% of GDP in Q3/2016.

The industrial production index (IPI) increased from 98.5 in July to 103 in September 2016, (base year is 2015).

Activity in all sectors: mining and quarrying, Manufacturing Industry, Electricity, Gas, Steam and Air Conditioning Supply Water Supply, Sewage, Waste Management and Remediation Activities sector all contracted in July, increased significantly in August and contracted again in September.

Current account and trade

The current account deficit decreased to (-) $314.4 million or 9.1% of GDP in Q3/2016 from (-)$391.5 million, or 11.6% of GDP, in Q2/2016. The decrease was driven primarily by the higher goods and services trade deficit. The income and transfer payment accounts both recorded a significant surplus in the quarter.

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

Goods exports from the Gaza Strip decreased in Q3/2016. Some 20 truckloads were exported compared with 105 truckloads in Q2/2016. Commercial transfers increased slightly in Q3/2016 with 261 truckloads leaving the Gaza Strip for the West Bank compared with 202 truckloads in the previous quarter. Products largely consisted of produce, furniture and stationery.

The private sector

The total area licensed for new construction in the West Bank in Q3/2016 was 13.5% higher than in Q3/2015. In the Gaza Strip, total area licensed for new construction was 22.5 % lower than in Q3/2015.

There was a 22.7% increase in the total number of new company registrations in the West Bank in Q3/2016 compared to the same period last year. In the Gaza Strip the number was 13.3% higher as compared with Q3/2015.

The labour market

The labour force participation rate in Q3/2016 was 46.1% of those aged 15 and above, that is 1,356,300 people. The labour force participation rate similar in the West Bank (45.7%) and the Gaza Strip (46.7%). 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 (17.2% and 22.5% in the Gaza Strip and West Bank respectively).

The unemployment rate for Palestine increased to 28.4% in Q3/2016 (26.9% in Q2/2016). The unemployment rate in the West Bank was 19.6%, an increase from 18.7% in Q3/2015. In the Gaza Strip, 41.7% of the labour force was unemployed in Q2/2016, marginally higher than a year ago.

Unemployment rates for women were higher than men in both the Gaza Strip (68.6% as compared with 35.4% for men) and West Bank (31.7% as compared with 16.8% 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. Unemployment rates were higher for youth than for those above 30. A total of 64.4% 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 Q3/2016 compared to Q2/2016 decreased by 0.6 month for men and decreased by 1.7 months for women in the West Bank. In Gaza,the period decreased by 1.2 months for men and 1.7 months for women. On average women were likely to remain unemployed 6 months longer than men in the West Bank and 8.3 months longer than men in Gaza.

The number of persons employed in the West Bank in Q3/2016 was higher than that in Q2/2016 by approximately 8,400. In the Gaza Strip, it was higher by 16,400. In the West Bank employment was lower in agriculture, fishing and forestry and services sectors in Q3/2016. In the Gaza Strip, employment was higher in all sectors except agriculture, fishing and forestry, and transportation, storage and communication.

In Q3/2016, 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 57.7 in Q3/2016, they received on average a daily rate of NIS 99.8 in the West Bank. Similarly, while women in the Gaza Strip made a daily wage of NIS 70.3 on average, women in the West Bank made a daily wage rate of NIS 80.7. Further, the average daily net wages 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 222.3 per day.

Consumer prices

Average prices, as measured through the Consumer Price Index (CPI), increased in Q3/2016 compared to Q2/2016 in the West Bank, including East Jerusalem but fell in Gaza. In comparison with Q3/2015, CPI increased in East Jerusalem but fell in the rest of the West Bank and Gaza.

The banking sector

Bank credit in Q3/2016 increased to $6.67 billion. Loans accounted for 80.8% bank credit, followed by overdrafts (18.7%) and leasing (0.5%).

The private sector continued to be the main source of bank deposits in Q3/2016 accounting for 77.9% of the total.

These figures resulted in a loan-to-deposit ratio of 63.9% in Q3/2016, slightly higher than the 62.8% in Q2/2016.

Note: Data do not include deposits of the PMA and commercial banks.

Fiscal operations

On commitment basis, by the end of Q3/2016, government total net revenue was 90.2% of the 11.19 billion NIS in the 2016 budget. Total expenditure was 79.5% of the NIS 15.21 billion in the budget for the year. By the end of the third quarter, the current deficit and the overall deficit had reached 49.9% and 52.5% of the annual projected amounts, respectively. External budgetary support by the end of the quarter reached 61.6% of the amount expected for the year.

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