Journalism of Courage
Dear Readers,
The Israel-Palestine conflict continues to dominate the news cycle with a rising number of casualties. Here’s a snapshot comparison of the two economies based on data from the International Monetary Fund (IMF). It will be followed by some more detailed analysis of Gaza’s economy based on the World Bank’s latest assessment which was published in September, just days before the latest round of violence.
#1 Population size
Before looking at any economic parameter, one must look at the population size. This demographic variable is often a key contributor to an economy’s economic fortunes.
As CHART 1 shows, at 9.81 million, the population of Israel in 2023 is almost double that of West Bank and Gaza (5.48 million).
#2 Nominal GDP
At a macro level, the most basic parameter used to compare any two economies and their relative might and health is to look at the gross domestic product (or the GDP). The GDP is essentially the market value of all final goods and services produced within the geographical boundaries of a country in a particular year. The GDP, which can be calculated and presented in different ways, tends to provide a fairly straight-forward way to peg one economy in relation to the other.
#3 GDP per capita
This metric quickly summarises the combined effect of the first two metrics. In doing so, GDP per capita — or the average income level in an economy — provides a notional yet useful measure of broad-based prosperity.
CHART 3 shows that GDP per capita of West Bank and Gaza in 2021 was just $3,460 per year. At $51,800, Israel’s average income level is almost 15 times more than Palestine’s. For context, the chart also provides the GDP per capita level of India. In 2021 it was $2,240 per year.
#4 Inflation rate
The rate of inflation is the rate at which the general price level increases from one year to another.
CHART 4 shows that on this count, for the most part, the two economies have moved very closely. In fact, according to the IMF, as of 2023 and before the latest conflict, the inflation rate in Israel was 4.3% in comparison to 3.4% in West Bank and Gaza.
#5 Real GDP growth rate
Real GDP is the GDP level when one takes away the effect of inflation from nominal GDP. To be sure, nominal GDP can go up either because an economy produces more goods and services or because the same level of goods and services are priced higher. More often than not, the GDP goes up as a result of a combination of the two factors. Real GDP refers to the level of GDP a country produces without the boost provided by the annual inflation rate.
Real GDP growth rate captures the rate at which real GDP grows from one year to another. In common parlance, it is this rate that is referred to as the GDP growth rate of a country.
CHART 5 brings out a key difference between the growth rates of the two economies: the real GDP of Palestine fluctuates far more than that of Israel. Higher levels of fluctuation suggest that the economy has not stabilised and often the higher growth rate of one year is largely a result of a terribly weak growth in the preceding year.
The relatively high vulnerability of the Palestine economy is best shown in the real GDP growth rates for 2020 — the year the Covid pandemic hit all economies. Israel’s real GDP contracted by just 1.5%.
West Bank and Gaza’s economy contracted by over 11%. For context, India’s real GDP contracted by 5.5% in 2020.
#6 Unemployment Rate
In any economy, not everyone looks for a job. Only a certain number of people look for jobs. The unemployment rate is the ratio of people who did not get a job despite looking for it. It is often the go-to metric to assess the state of the labour market in any economy.
CHART 6 maps the stark difference in the unemployment rate prevailing in the two economies. At last count Israel’s unemployment rate was just 3.5% while that of West Bank & Gaza was 24.2%— that is almost eight-times more.
Why does the Palestine economy struggle so much?
Why is that despite having half the population of Israel, Palestine ends up struggling so far behind Israel in so many crucial macroeconomic parameters?
A World Bank assessment published in September 2023 — just days before terror attack by Hamas on October 7 — states the following:
“The Palestinian economy slowed during the first months of 2023. Preliminary data for the first quarter (Q1) of 2023 indicate that growth slowed to 3.1 per cent, year-on-year (y/y), largely due to the waning of post-pandemic recovery. Meanwhile, systemic restrictions imposed by the Government of Israel (GoI) continue to curtail economic activity, especially in Gaza, where the economy contracted by 2.6 per cent in Q1 2023, according to data by the Palestinian Central Bureau of Statistics (PCBS). This is largely on account of a decline in the agricultural, forestry, and fishing sector, which shrank by almost 30 percent following a decision by the GoI to restrict the sale of Gazan fish in the West Bank in August 2022.”
The World Bank also did not have a sanguine outlook: “Under the baseline scenario, the Palestinian economy is expected to continue languishing under the multi-layered system of Israeli restrictions on movement access and trade in the West Bank, the near-blockade of Gaza, the internal divide, and a reform program lacking conclusiveness and momentum on the Palestinian Authority (PA) side. These constraints will continue to hinder economic activity and discourage private-sector development, preventing the Palestinian economy from reaching its potential,” stated the World Bank assessment.
It further stated that: “Under these assumptions, economic growth is expected to hover around 3 percent over the medium term, and due to rapid population growth, the real income per capita is expected to stagnate at best.”
Lastly, it pointed out distinct downside risks to its assessment: “Moreover, downside risks remain elevated. An escalation of Russia’s invasion of Ukraine could further strain global supply chains and increase pressure on food and energy prices, slowing the growth of the Palestinian economy. Meanwhile, renewed clashes between Palestinians and Israeli forces in the West Bank and Gaza would increase the already elevated levels of political and economic uncertainty and could further limit Palestinian workers’ access to the Israeli labor market.”
Share your views and queries at udit.misra@expressindia.com
Until next time,
Udit
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