Weak performance in Palestinian industrial sector leads to economic slowdown

PNN/ Ramallah/

The PMA has released the results of its Business Cycle Index (PMABCI) for May 2015. The results showed that the overall PMABCI has decreased from 16.3 points during April to around -0.1 points this month. This came as a result of a notable decline in the business cycle in the West Bank (WB), with a slighter fall in Gaza Strip (GS).

In the WB, the value of business cycle index contracted to around 2.4 points, compared with 23.2 points during April, due to weak performance in all sub-sectors, particularly in the food, textile, and construction. Their indices declined by around 5 points for each, reaching 0.7 points, 0.0 points, and 0.9 points, respectively. Although the index’s value remained positive, its decline indicates a slowdown by all industrial activities, due to a decrease in the current and expected production levels of most industrial sub-sectors, coupled with an expected fall in aggregate demand in coming months.

It is worth mentioning that over the past months, the Palestinian market has seen a drop in the prices of a range of imported goods. This decline in global commodity prices dragged down the cost of many imports, which has affected negatively the domestic production levels. Such trends are expected to persist in the short-term; future production is highly anticipated to decline further in the coming three months. Similar expectations were made about employment levels, albeit to a lesser extent.

In Gaza Strip, the index has recovered (or the contraction decelerated), improving from -24.0 points during April to around -14.1 points this month. The indexes for both food and engineering sub-sectors have improved, in addition to a notable recovery in construction, with its index recovering from -20.1 points to around -13.1 points. This recovery came after many firms partially resumed operations in light of an increasing flow of raw materials entering the Strip. Nevertheless, this flow remains below its pre-blockade levels, and significantly less than required for the reconstruction of GS.

As a result, data indicate a relative improvement in current production and sales, accompanied by decreasing inventory levels. Pessimism among firms’ owners about future output and employment has declined accordingly. However, Gazan industries continue to suffer from numerous obstacles. Beside the shortage in raw materials (e.g. woods, some iron cylinders, and chemicals), industries face a continued electricity and fuel crises, prolonged delay in starting reconstruction, in lifting the blockade, and in opening Rafah border crossing. This is in addition to a decline in domestic demand due to the salaries crisis which adversely affected various sectors and institutions, such as public sector, higher education institutions, and cleaning companies working in health institutions.

It is worth to note that the PMABCI is a monthly index, which aims to capture the state and evolution of economic activity in Palestine by tracking the performance of the industrial sector, especially fluctuations in production and employment levels and their implications for the economy at large. The maximum value of the PMABCI is positive 100 point, while the minimum is minus 100 point; a positive value indicates favorable economic performance, while a negative value indicates bad performance. On the other hand, a value close to zero indicates that economic performance did not change and is unlikely to do so in the near future.

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