The lack of a clear political horizon towards peace and reconciliation creates an unsustainable economic situation. Even though donor aid had increased government-funded services and fueled consumption-driven growth during 2007 to 2012, this growth model has proved unsustainable. Donor support has significantly declined in recent years and, naturally, aid cannot sustainably make up for inadequate private investment, constrained by weak investor confidence due to the ongoing restrictions and the lack of political progress. Thus, growth started to slow in 2013 and the Palestinian economy contracted in 2014 as a result of the Gaza war. Recovery has started, but real per capital GDP in 2015 is estimated to have remained constant.
The July-August 2014 conflict in Gaza created a humanitarian crisis and has dramatically worsened the development challenges. More than 2,100 Palestinians died during the hostilities, a third of the population was internally displaced and economic losses amounted to US$1.7 billion. Gaza’s economy continues to suffer from the impact of the 2014 war; at the current pace of recovery the Gaza economy is not expected to rebound to its pre-war level until 2018.
A quarter of the Palestinian labor force is still unemployed. Gaza’s unemployment was 38% by the end of 2015 – twice that of the West Bank. Youth unemployment was very high in 2015. Poverty in Gaza was 39% in 2014, which is almost 2.5 times higher than that in the West Bank. According to the United Nation’s Relief and Works Agency, almost 80% of Gaza’s population is currently aid dependent.
The current decline could be reversed in an environment where sustainable, private sector-led growth is fostered coupled with a commitment of ongoing financial support from the international community. A dynamic private sector can generate the sustainable growth needed, however, restrictions put in place by the Government of Israel continue to stand in the way of potential private investment. Access to Gaza remains highly controlled, and much of Area C, which makes up 60% of the West Bank, is inaccessible to Palestinians.
Last Updated: Apr 01, 2016