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The Gaza war continues to have a "catastrophic impact" on the Palestinian economy and has plunged it into a crisis of “unprecedented magnitude”, the World Bank has warned.
The real gross domestic product of the Palestinian territories is expected to contract by 26 per cent this year, in the steepest decline in economic activity in two decades, a World Bank report said on Monday.
While Gaza’s economy shrunk by 86 per cent in the first half of 2024, the West Bank's economy contracted by 23 per cent. In Gaza, annual per capita income has fallen from $2,328 in 1994 to less than $200 today.
The war has caused infrastructure destruction, surging unemployment, soaring prices and the collapse of essential services in the Palestinian territories, the report said.
"The conflict has entered its second year. Palestinians continue to endure an unprecedented level of trauma, violence, economic hardship and uncertainty," the report said.
The war, which has killed more than 45,000 and injured over 106,000 since October last year, has displaced nearly 1.9 million people, or about 90 per cent of Gaza's population. It began with the Hamas-led attacks on southern Israel on October 7, 2023, in which 1,200 people were killed.
Economic activity in Gaza has almost stopped, the report said, adding that its contribution to the overall Palestinian economy has plunged from 17 per cent to just 3.5 per cent, even though it is home to 40 per cent of the population in the Palestinian territories. The report estimated that 66 per cent of businesses in Gaza have been completely wiped out, while 22 per cent have sustained partial damage, leaving the commercial sector on the verge of collapse.
Rising unemployment
The war's ripple effects have also devastated the labour market, especially in Gaza, where the unemployment rate has surged more than 80 per cent.
In the West Bank, the unemployment rate has climbed to 35 per cent, fuelled by access restrictions to Israeli labour markets and disruptions in local economic activity. As of the first half of the year, the combined unemployment rate for Palestinian territories reached a record 51 per cent. The collapse of the labour market has led to a rise in informal work, including street selling and irregular employment, as families struggle to survive.
Food prices have soared, with the cost of essentials rising 448 per cent in October compared to the same period last year. Fuel costs during the period increased by 207 per cent, due to supply chain disruptions and logistical bottlenecks caused by the conflict.
Shortages of essential goods have driven thousands of households deeper into poverty, the World Bank said. “The erratic access, limitations and looting of goods entering Gaza have contributed to food insecurity at unprecedented levels.”
No access to emergency services
Gaza’s telecommunications infrastructure has also been destroyed. “The destruction of infrastructure in Gaza has led to widespread outages in mobile and internet connectivity, disrupting critical communication services, including emergency response and life-saving services, and exacerbating the hardships facing civilians,” the report said.
Operators have resorted to installing mobile towers on lorries and offering free calls and data packages to affected residents. Despite these efforts, the vast majority of Gaza's population remains digitally isolated, with no access to communication services.
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Smoke rises after Israeli air strikes targeted Palestine Tower in Gaza city on October 7, 2023. EPA -
Palestinians take control of an Israeli Merkava battle tank after crossing the border fence with Israel from Khan Yunis in the southern Gaza Strip on October 7, 2023. AFP -
This video grab from footage released by the Israeli Hostage and Missing Families Forum campaign group on May 22 shows what the group described as Israeli female soldiers being captured by Palestinian Hamas militants during the October 7, 2023, attack on Israel. AFP -
Smoke rises following an Israeli air strike in Gaza city on October 9, 2023. EPA -
A rocket is launched from the coastal Gaza strip towards Israel by militants of the Ezz Al-Din Al Qassam militia, the military wing of Hamas movement, in Gaza city. EPA -
Israel's Iron Dome anti-missile system intercepts rockets launched from the Gaza Strip, as seen from the city of Ashkelon, Israel, on October 9, 2023. Reuters -
Lightning strikes as smoke billows following an Israeli air strike in Gaza city on October 9, 2023. AFP -
An Israeli artillery unit fires at an area along the border with Gaza, southern Israel, on October 11, 2023. EPA -
Ultra-Orthodox Jewish people carry their belongings before boarding a ship for US nationals and their immediate family members, as they leave Israel headed for Cyprus. Reuters -
Palestinian youths take cover behind a rubbish container as they clash with Israeli forces at the northern entrance of the West Bank city of Ramallah near the Israeli settlement of Beit El on October 20, 2023. AFP -
A man mourns as he attends a funeral of Palestinians killed in Israeli strikes in Khan Younis in the southern Gaza Strip on October 24, 2023. Reuters -
A man holds a child, survivors of Israeli bombardment, as they are treated at a trauma ward at Nasser hospital in Khan Yunis in the southern Gaza Strip on October 24, 2023. AFP -
People search for survivors and the bodies of victims through the rubble of buildings destroyed during Israeli bombardment in Khan Yunis in the southern Gaza Strip on October 26, 2023. AFP -
Anti-war protesters raise their 'bloody' hands behind US Secretary of State Antony Blinken during a Senate Appropriations Committee hearing on President Biden's $106 billion national security supplemental funding request to support Israel and Ukraine, as well as bolster border security, on Capitol Hill in Washington on October 31, 2023. Reuters -
Palestinians run for cover after a strike near the Al Shifa hospital in Gaza city on November 1, 2023. AFP -
Palestinian children run as they flee from Israeli bombardment in Rafah in the southern Gaza Strip on November 6, 2023. AFP -
An injured Palestinian woman covered in dust and blood hugs an injured girl child at the hospital following the Israeli bombardment of Khan Yunis in the southern Gaza Strip on November 15, 2023. AFP -
Hostages released by Hamas Gal, left, and Tal Almog-Goldstein, second left, stand in a bus transporting them to an army base in Ofakim in southern Israel after they were released by the Palestinian militant group from the Gaza Strip on November 26, 2023. AFP -
Palestinian boys stand in their makeshift tent at a camp set up on a schoolyard in Rafah in the southern Gaza Strip where most civilians have taken refuge, on December 13, 2023. AFP -
Palestinians fleeing the north through the Salaheddin road in the Zeitoun district on the southern outskirts of Gaza city, walk past Israeli army tanks on November 24, 2023. AFP -
In this picture taken during a media tour organised by the Israeli military on December 15, 2023, soldiers visit a tunnel that Hamas reportedly used to attack Israel through the Erez border crossing on October 7. AFP -
Jewish protesters block the passage of aid trucks being sent to Gaza in Ashdod, Israel on February 1, 2024. Reuters -
A man pulls water containers as he walks past destroyed buildings in Khan Younis on May 5, 2024. AFP -
Relatives of Hanan Yablonka, one of the Israeli hostages held in the Gaza Strip since the October 7, 2023 attack by Palestinian Hamas militants, mourn during his funeral in Tel Aviv on May 26. AFP -
Humanitarian aid packages land after being dropped from a plane in Al Mawasi district of Khan Younis, on May 30, 2024. Reuters -
Palestinians attend Eid al-Adha prayer in Khan Younis town, southern Gaza strip, on June 16. EPA -
Displaced Palestinians play football in Jabalia on July 23, 2024. AFP -
Palestinians injured in an Israeli strike on a school ride on the back of a cart in Deir Al Balah on July 27, 2024. AFP -
Palestinians gather to receive food cooked by a charity kitchen, amid the Israel-Hamas conflict, in the northern Gaza Strip, September 11. Reuters -
Palestinians survey the damage at the site of Israeli strikes on a displacement camp in Khan Younis on September 10, 2024. AFP -
A medical staff member carries supplies through a destroyed section of Al Shifa hospital in Gaza city on September 17. AFP -
People walk past makeshift graves in Gaza city on September 17. AFP
The financial sector, which has historically been one of the more resilient pillars of the Palestinian economy, is also under strain. Although Palestinian banks remain well capitalised, with a 16.1 per cent capital adequacy ratio as of June, the sector faces heightened risks, the World Bank said.
Additionally, banks have taken action to bolster resilience further, with some issuing new capital, bringing total own funds to $2.1 billion, it added.
But virtually all bank branches and ATMs in Gaza are no longer operational, with 33 of 57 head offices and bank branches destroyed and another 19 partially damaged. "A deepening cash liquidity shortage has reduced purchasing power, leading to black-market withdrawals with high commissions," the World Bank said.
Meanwhile, the Palestinian Authority's financing needs after aid and increased clearance revenue deductions reached $1.04 billion for the January to October period. As a result, the PA has had to reduce public sector salaries, paying workers only 60 to 70 per cent of their full wages since October last year. This has further weakened household spending, slowed consumption and fuelled social discontent, the report said.
The PA is now relies heavily on borrowing from domestic banks and deferring payments to private suppliers and pension funds.
The World Bank warned that the conflict has had a larger economic impact on the Palestinian territories than any previous crisis, including the Second Intifada (2000-2005), the 2006 internal political divide, the 2014 Gaza war and the Covid-19 pandemic.
