West Bank economy faces severe setback amid ongoing Gaza conflict

The Palestinian economy in the West Bank, which is already fragile and dependent on Israel, has experienced significant deterioration since the war in the Gaza Strip began in October 2023. This deterioration affects the standard of living for most households and raises concerns that it could lead to widespread unrest, especially as external forces such as Hamas and Iran are exacerbating the situation through financial and military support and increasing incitement.

The restrictions imposed by Israel on the Palestinian Authority (PA) since the beginning of the Gaza war have contributed to the growing economic distress in Judea and Samaria. These restrictions include cutting tax revenue transfers intended for the Gaza Strip (in addition to offsetting the money that the PA transfers to the families of terrorists and prisoners) and closing the Israeli labor market to Palestinians.

Data shows the devastating effect of the Gaza war on the PA's economy. While GDP grew by 4% in the first three quarters of 2023, it fell by 19% in the last quarter when the war began. As a result, GDP contracted by about 2% for the year, and GDP per capita fell by about 4.5%. In the first nine months of 2024, indicators continue to show a negative trend.

The IDF's repeated operations in the West Bank to combat terrorism have created movement restrictions, prevented employees from reaching their workplaces, increased transportation costs, investment risks, and uncertainty. This has led to shortages of production inputs and consumer products. A survey conducted earlier this year revealed that 99% of businesses in Judea and Samaria were negatively affected by the situation since October 7. Additionally, 97% of businesses reported a decrease in sales and subsequently reduced their workforce.

Before October, between 150,000 and 200,000 Palestinian workers (both legal and illegal) earned their livelihood from the Israeli labor market (including on the other side of the Green Line). Their incomes were an important pillar of the Palestinian economy and drove consumption-based growth. Since the beginning of the war, over 80% of these workers have lost their jobs. Estimates suggest that the closure of the Israeli market is expected to lead to a nearly 30% decrease in Palestinian GDP this year.

Due to decreased activity, one in four employed in the private sector in Judea and Samaria (which includes about 144,000 jobs) has lost their job. Consequently, unemployment in Judea and Samaria surged to 32% in the fourth quarter of 2023, compared to about 13% in the third quarter.

Despite the negative economic trends, the damage to the standard of living, and the ongoing fighting in the Gaza Strip, there are no clear signs of an "intifada" as wished for by Hamas and other leaders in Gaza. Over the past year, most households in Judea and Samaria have managed the drop in income through loans, selling gold and other assets, rather than channeling their distress into a widespread popular conflict with Israel.

However, as of now, the strengthening of terrorist organizations is evident through the establishment of new "battalions" in West Bank cities and the creation of explosives laboratories producing more powerful explosives than in the past. Additionally, there has been an increase in individual terrorist activities. While economic distress has not yet led to widespread unrest, the fear remains. Past experience shows that it is difficult to predict the exact timing of such an outbreak, as it may be triggered by a local event amplified by incitement on social networks.