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The impact of Israel's war on Gaza’s economy is expected to be “tragic and tremendous” as Prime Minister Benjamin Netanyahu's government continues to bomb the besieged enclave.
The economic outlook for Gaza was grim even before the war broke out and the latest conflict is expected to exacerbate the situation further, with unemployment and poverty levels rising in the narrow territory of 2.4 million people, according to experts.
The impact “would be tragic and tremendous, given the fact that the whole economy now is disabled without any functions”, Naser Mufrej, professor of finance and economics at the Arab American University in Ramallah, told The National.
“The total gross domestic product of Gaza is estimated at around $4 billion to $5 billion and we are talking about GDP [loss] per day of about $14 million to $20 million.”
The latest bombardment by the Israeli army leaves Gazans “with no income, with no work almost, and with no food, given no electricity and no energy”, as well as savings as they have been subjected to a severe siege by Israel over the past 16 years, he said.
Israel imposed a land, sea and air blockade on the Gaza Strip in 2007, hampering the movement of people and goods, and hitting the enclave's economy hard.
“Socioeconomic indicators before the war were very terrible and alarming. For example, we are talking about the unemployment rate among the population, on average of 45 per cent, but among university graduates, we are talking about almost 60 per cent,” Mr Mufrej said.
“Poverty is also high at around 70 per cent and people who are relying on aid for living, [it] is about 80 per cent, especially households.”
The Palestinian economy was expected to continue operating well below its potential and growth is projected to hover at about 3 per cent, according to a World Bank report published last month, before the start of the war.
Given population growth trends, income per capita is also expected to stagnate, dragging down living standards, the Washington-based lender said at the time.
In addition, a combination of fiscal constraints and the restrictions imposed by Israel on Palestinian territories hinder access to health care, adversely affecting the population, especially in Gaza.
The International Monetary Fund previously projected real GDP growth of 3.9 per cent for Gaza in 2023, 2.2 per cent in 2024 and 1.9 per cent in 2025.
However, due to the current war, damage inflicted on businesses and agricultural land, “which may not be good for farming any more because of the weapons used”, is expected to hit the economy hard, Mr Mufrej said.
“The economic losses would double or even triple and we will lose whatever is left … either assets or income. That will be a huge and terrible scene,” he said.
Israel last week warned people to evacuate the northern part of Gaza and move towards the south as it prepares for a ground invasion of the narrow territory.
About 5,000 Palestinians, mainly civilians, have been killed so far in Gaza during Israeli bombardments in retaliation for the Hamas attacks on October 7, the enclave's Health Ministry said on Monday.
On Sunday alone, more than 400 people were killed in attacks by Israeli warplanes. Many of those killed and wounded were women and children, Palestinian news agency Wafa said on Monday.
“I expect a severe contraction in economic activity in 2023 and in 2024, given the all-out war, the massive destruction of infrastructure, installations and buildings, and the expected huge output losses,” Nassib Ghobril, a Beirut-based economist who covers emerging markets and developing economies, told The National.
“In addition, the IMF’s recommendation of the need for co-ordinated efforts between the Palestinian Authority, Israel and the international community looks impossible to achieve in the short to medium term, given the political and military context.”
In August, after an IMF staff visit to the occupied West Bank and Gaza, the fund portrayed a grim picture of Palestine's economy and said that the outlook remained “bleak amid volatile political and security conditions, with downside risks persisting”.
It added that “the increasingly difficult environment” was weighing on both the supply and demand sides of the economy.
Its projections pointed to a gradual reduction of per capita income over the medium term amid a continued widening of the already large gap in living standards between the occupied West Bank and Gaza.
Drone footage shows devastation of Israeli strikes on Gaza residential area
Bleak outlook
“The negative economic outlook prior to the war is likely to become a very bleak economic outlook for the Gaza Strip,” Mr Ghobril said.
The war has paralysed economic activity across all productive sectors and services, “further exacerbating the problem of unemployment, especially given the destruction of a large number of economic establishments”, the Ramallah-based Palestine Economic Policy Research Institute said in a report last week.
The report highlighted damage to water and electricity infrastructure, schools, hospitals, buildings and factories in Gaza as a result of the Israeli bombing.
At least 145 industrial units were damaged in the first week of the war on Gaza, it said.
The Israeli bombardment “will prevent citizens from returning to work after the war ends. The entire Palestinian labour force has become unemployed, with no evident solution”, the report said.
As of October 16, the war had completely destroyed more than 2,185 buildings and 8,840 housing units, in addition to the partial destruction of more than 89,000 housing units, according to the report.
This has resulted in the forcible displacement of about 680,000 Palestinians inside the Gaza Strip.
Desalination plants and power stations also stopped working in the enclave amid continued shelling by the Israeli army.
“The war, since it has started, has resulted in nearly the complete destruction of any productive capacity of the Gazan economy,” said Anas Iqtait, a lecturer in economics and the political economy of the Middle East at the Australian National University.
“The productive base – or the very little productive base that the Gazan economy had at the start of this war on October 7 – has been completely annihilated by Israeli bombardment,” he said.
“So, this means after the war is over, the Gaza economy will have zero productive capacity as an economy and it will have to rely on international aid, developmental as well as the humanitarian or the services sector, which obviously cannot employ 100 per cent of the labour force.”
Civilian and public infrastructure is also expected to be completely destroyed by the end of the war, Mr Iqtait said.
“We are talking about hundreds of thousands of residential units that have been either completely demolished or completely destroyed by Israeli bombardment or partially damaged and being unable to actually [be] inhabited. So, this is obviously going to be calculated at the billions of dollars,” he said.
The cost of reconstruction could be in the billions of dollars, according to Khaldoun Hilal, chief executive of Dubai-based Kama Capital.
“The conflict has displaced a large number of people and led to large material losses, which could heavily affect the local economy's capacity to recover after the end of the hostilities,” he said.
The Gazan economy also heavily depends on work in Israel, with around 18,000 Gazans working in the country, but the current conflict is disrupting this vital source of income, according to Vijay Valecha, chief investment officer at Century Financial.
"To address these challenges, Gaza's economy needs a political solution to end the conflict, lift the blockade and ensure free movement of goods and people," Mr Valecha said.
"Additionally, diversifying trade, improving infrastructure and restoring access to global markets through initiatives like reopening the Gaza International Airport and the seaport are crucial for the region's economic stability and growth."
