Economic Monitor Issue 68 Part 1/2021

After the coronavirus vaccination campaign began in 2021—along with the lifting of preventive measures and a subsequent uptick in consumption and investment—the Palestinian economy began to show signs of gradual recovery compared with the previous year. GDP grew by 7.1% in 2021 compared with 2020. This growth was driven primarily by the public admiILStration sector, which contributed about 1.62% in real GDP —followed by the services and trade sectors, which contributed 1.46% and 0.81% to the real economic growth, respectively. Similarly, the value-added of all key productive sectors grew except for agriculture, where value-added fell by 2.3%. 

Despite the good performance, key sectors and subsectors have not yet returned to their prepandemic performance levels. Specifically, value-added in the construction, commerce, industry, and transportation sectors is still more than 10% below pre-pandemic levels. Because of the significant stagnation in travel and tourism and concerns about novel variants of COVID-19, the value-added of hospitality and restaurant services, arts and entertainment, vocational activities, and other service activities also remain far below 20% of its levels before the outbreak of the pandemic.

At the level of spending, despite the discernible uptick in exports and public consumption and the rebound in private consumption and investment, recovery possibilities were undermined by the growing dependency on imported goods and services. It also limited the decrease in the current account deficit despite the increase in compensation to workers in Israel, income from investments abroad, and current transfers to nongovernmental sectors. Notably, the latest Israeli assault on the
Gaza Strip and the tightening of the blockade in May 2021 reduced the chances of economic recovery in the Gaza Strip (3.4%) compared with the West Bank (7.8%). Moreover, the limited sources of growth and development, the continuous spike in prices of goods and services globally, and the persistent deduction of clearance revenues by the occupation authorities will further strain the prospects for recovery in 2022. By and large, the harmful overlap between these short-term impacts and the historical fragility in the structure of the Palestinian economy adds yet another annus horribilis to the record of the cumulative development deficit of the occupied Palestinian territory (OPT).