West Bank Aggregate Demand down as Israel withholds Tax Revenues

RAMALLAH, February 22, 2015 (WAFA) – The West Bank overall economy has witnessed a decline in aggregate demand for the second consecutive month, mainly due to partial payment of public sector salaries, due to Israel’s withholding of clearance revenues, according to the Palestine Monetary Authority (PMA).

The PMA results of its Business Cycle Index (PMABCI) for February 2015 showed that the overall PMABCI witnessed a decline to around 2.4 points in February, compared to 3.9 points in both the previous and corresponding months. This decline reflected a significant drop in the index of the Gaza Strip (GS), with a relative decline in the West Bank (WB) also, said the PMA.

In the WB, the index has relatively worsened from around 4.5 points during January, to around 3.3 points this month. This reduction reflected varying performance of the various industrial sub-sectors.

This heightened expectations of negative effects on future prospects among industrial firm owners. Nevertheless, some industrial firm owners (particularly in the food and textile sub-sectors) expressed modest optimism about the near future in expectation of a reduction in production costs as oil prices continue to decline.

In GS, the index sharply dropped to around -12.8 points during February, compared to a recovery in the previous month when the index improved to -3.0 points.

As it is the case in the WB, industries have shown varying performances, but most of them have notably fallen. The reductions in the food and construction sub-sectors were the highest contributors to deterioration of GS’s overall index, the PMA says.

Gaza’s food index has also dropped from 6.8 points to around 0.0 points. At the same time, construction index fell from -13.8 points to -20.9 points. Likewise, chemical, engineering, and plastic sub-sectors have also fallen in the same period, while the recovery in textile, paper and furniture sub-sectors was marginal.

It is noteworthy that construction is deteriorating for the third consecutive month due to Israel’s barring the entry of needed building materials.

As a result, pessimism about the near future has expectedly increased again in GS as firm owners shared apprehension about production levels in the coming months. These fears were based on the continued electricity and fuel crises in GS, in addition to a prolonged delay in fulfilling commitments towards the reconstruction of Gaza, the lifting of the blockade, and opening Rafah crossing border.

There were also concerns about a drop in private consumption given the abovementioned disruption of public servants salaries.