Economic Trends

The Palestinian Ministry of Finance (MOF) and the International Monetary Fund (IMF) estimate that real Gross Domestic Product (GDP) and Gross National Product (GNP) grew by about 1.0 and 2.0 per cent respectively in 1997. These were downward revisions of earlier, more optimistic growth forecasts, necessitated by two comprehensive closures imposed by Israel on the West Bank and Gaza Strip (PALESTINIAN AUTHORITY) in the first and third quarters of 1997. Macroeconomic growth projections for 1998 were more optimistic with initial MOF/IMF estimates for real GDP and GNP growth of and 3.5 per cent respectively.

Better than expected trends in the first half of the year resulted in an upward revision of these estimates. In particular, permitted and non-permitted Palestinian labor flows to Israel and donor disbursements were higher than expected, while imports--which may reduce domestic growth--were reported to have fallen. As a result, the MOF and the IMF revised upward their real GDP and GNP growth estimates to 3.0 and 5.5 per cent respectively. These growth rate estimates were reaffirmed at the end of the third quarter, despite the imposition of 22 comprehensive closure days during September and October.

If accurate, the estimated growth rates would be sufficient to raise marginally per capita income levels in the PALESTINIAN AUTHORITY for the first time since the beginning of the interim period in 1994. The projections, and the estimates of the components, on which they are based, can be more fully assessed by reviewing the performance of key macroeconomic indicators for 1998. These include PALESTINIAN AUTHORITY labor flows to Israeli-controlled areas; trade flows between Israel and the PALESTINIAN AUTHORITY and between the latter and the rest of the world; private investment trends (including trends in credit extension); donor-assisted public investment; and the effects of closures and other restrictive measures on these macroeconomic indicators.