Fiscal Crisis, Economic Prospects

Economic growth in West Bank and Gaza
(WB&G) slowed in the first quarter (Q1) of 2012. The
real growth rate is estimated to have reached 5.6 percent,
more than three percentage points lower than the Q1 2011
growth figure and almost one percent lower than the growth
forecast contained in the Palestinian Authority's
(PA's) budget. This decline is attributed to a major
slowdown in Gaza, where real growth decreased from 21.3
percent to 6 percent on a year-on-year basis. The slowdown
in Gaza during Q1 of 2012 was mainly attributed to a major
decline in the agriculture and fishing sector, which offset
much of the growth witnessed in other sectors. This sector
shrank by 43 percent in Q1 2012 due to frequent power
outages resulting from the lack of fuel in Gaza.
Nevertheless, other sectors in Gaza expanded and the highest
growth levels were witnessed in the construction, and hotels
and restaurants sectors. In the West Bank, growth in Q1 2012
was broadly unchanged from its 2011 level. Most of the
growth was from an expansion of services, which contributed
around 2.2 percentage points of the 5.4 percent total growth
in Q1 2012. The recent slowdown in economic growth is also
reflected in higher unemployment levels. Overall
unemployment in WB&G was 20.9 percent in the second
quarter of 2012 compared to 18.7 percent during the same
period in 2011. A serious concern in WB&G is the high
level of youth unemployment that is accompanied by low youth
participation in the labor force.