Gaza and West Bank in 'largest economic crisis to date', World Bank economist says

International financial institution reports the enclave's economy is at a near collapse after contracting by 86% in the second quarter

Palestinians wait for aid lorries in the central Gaza Strip on May 19, 2024. AP

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Gaza and the occupied West Bank face an unprecedented economic crisis, a World Bank economist said, after the institution lowered its outlook for the Middle East and North Africa last week.

A year on from the beginning of the war, which has claimed more than 42,000 lives according to local authorities, Gaza's economy is left in ruins. It shrank 86 per cent in the second quarter this year, and a World Bank and UN assessment earlier this year estimated the cost of damage to critical infrastructure at about $18.5 billion.

The West Bank economy contracted 23 per cent, the World Bank said, due to restrictions on movement, a decline in consumption and a severe fiscal crisis. The Palestinian Authority currently has a financing gap of $1.86 billion this year, the World Bank said, citing sources.

“What we see in Gaza and the West Bank is the largest economic crisis to date,” Roberta Gatti, the World Bank's chief economist for the Middle East and North Africa, told The National in an interview following the lender's most recent regional outlook.

Ms Gatti said the findings of the report saddened her on the human side of the conflict.

“And as an economist, I was sobered by what we saw being the impact of conflict in economies over the long term, and how fundamental peace is for development,” she said.

The humanitarian crisis faces potential long-lasting consequences, the World Bank said in its most recent economic outlook for the Middle East and North Africa.

Food insecurity in Gaza has “massively escalated”, it said. Fifteen per cent of Gaza's two million population faces famine-like conditions. A separate report from the UN said the current level of food insecurity for 133,000 people is “catastrophic”.

Additionally, 90 per cent of children under two years and 95 per cent of pregnant women or women who are breastfeeding face extreme food poverty.

“We know that there is an important interaction between the physical development of children and their cognitive development, and this will also have repercussion, not only on them as human beings, but also on them as a productive workers in the future," Ms Gatti said.

Region clouded by uncertainty

The World Bank said conflict casts a “long shadow” over the region's economic outlook.

The institution last week lowered its 2024 outlook for the Middle East by half a percentage point on heightened uncertainties caused by escalating tensions in the Gaza war and Opec production cuts.

As a whole, the region's gross domestic product is forecast to expand 2.2 per cent this year, a modest increase from 2023. This growth is being driven by the GCC, whose GDP is forecast to rise to 1.9 per cent this year after a 0.5 per cent increase in 2023.

“We see a fragile growth amid uncertainty in the region,” Ms Gatti said.

Uncertainty in the Middle East is nearly twice that as of other emerging markets and developing economies, the World Bank said.

According to one analysis, conflict-afflicted countries in the regions' income-per-capita could have been 45 per cent higher on average without the conflict. The loss equates to 35 years' worth of progress.

“That's a big number,” Ms Gatti said.

“And we see that the current conflict has come at a time where fragility writ large and violence has has increased twofold since the early 1990s – and also the region has the highest share of casualty in globally.

“So there is an increase in fragility and conflict in the region, of which, this last one is a very tragic example.”

Underscoring this uncertainty is the situation in Lebanon, which has been bombarded by air strikes since Israel's ground incursion in September.

The World Bank, whose regional outlook went to print before the incursion began, had forecast Lebanon's GDP to shrink by 1 per cent this year, driven by tourism.

Lebanese authorities have said 1.2 million people in Lebanon have been displaced or directly affected by the crisis.

The World Bank said the conflict's future trajectory will determine the full economic impact.

While the full scale of the crisis's impact on Lebanon's economy is still to be determined, Ms Gatti does not anticipate it will have a significant impact on the broader region's growth prospects.

“But the reality of Lebanon can change dramatically, and for sure, that underscores the uncertainty that all of us who are producing forecasts and trying to understand the trajectories of economies face.”