Palestinian economy to shrink 3.7% in 2023 as war hits business activity, World Bank says

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The devastating effects of the Israel-Gaza war, which is now in its third month, has prompted the World Bank to reverse its 2023 forecast for the Palestinian economy to a 3.7 per cent contraction, from a growth projection of 3.2 per cent before the war.

The Palestinian economy has been at a “near-complete standstill” since the conflict broke out in October, raising the risk of a “lasting impact” on its future and heightened levels of poverty, the Washington-based body said in its monthly update.

The contraction would be equal to a drop of about $1.5 billion in nominal gross domestic product for 2023 alone, with the losses extending to household incomes, company profits and government taxes, it said.

This would erase all the welfare gains made in the Palestinian territories since the end of the Covid-19 pandemic.

The forecast adds to the burden faced by the Palestinian economy, which was already experiencing a slowdown.

In the first half of 2023, growth in the Palestinian territories slowed to 3 per cent annually, largely due to the waning post-pandemic recovery.

Gaza’s economy alone has been experiencing a deep contraction, having shrunk by 4.4 per cent, year on year, in the first six months of 2023.

The enclave’s economic contraction was attributed to a large decline in the agricultural, forestry and fishing sectors, a result of additional Israeli restrictions on the sale of Gazan products into the occupied West Bank since August 2022.

“The current crisis exacerbates pre-existing structural weaknesses, and efforts by the international community to address them have had limited success,” the World Bank said.

The effects of the conflict on the Palestinian economy are consequential, according to the lender’s preliminary estimates.

As of the second half of November, about 60 per cent of information and communications technology infrastructure, at least 60 per cent of health and education centres and 70 per cent of commerce-related infrastructure had been damaged or destroyed in Gaza.