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Last Updated: Sunday, 28 September, 2003, 01:16 GMT 02:16 UK
Mid-East economic gloom bites deep
By Emma Clark
BBC News Online business reporter

Three years of the Palestinian uprising - or intifada - have laid waste to the region's economy. While Israelis have seen their way of life compromised, 60% of Palestinians have slipped below the poverty line.

In Arabic, the word intifada means a struggle, or a shaking off of fear. It can also mean a sudden waking from sleep.

A damaged mosque in Gaza
Palestinian infrastructure has suffered during the intifada
Since September 2000, the Palestinians have woken to the nightmare of 30% unemployment, malnourished children and increased poverty.

Physical isolation, following Israel's policy of closing down Palestinian borders, has decimated trade and prevented many Palestinians from travelling to work.

As a result, national incomes have declined by a third since September 2000.

In Israel, meanwhile, consumer confidence remains historically low, and the country is struggling to throw off three years of recession.

Thwarted hopes

On both sides, there is a weary recognition that economic progress will be wholly dependent upon resolving the current conflict.

"Until there are signs of political rapprochement, the economy... will continue to languish," said the World Bank in May.

Graph of Palestinian GDP per capita
The recent floundering of the "roadmap" to peace, keenly supported by US President George W Bush, has therefore come as a cruel disappointment for both sides.

"There were mild signs of recovery in second quarter," says Nigel Roberts, director of the World Bank in Gaza and the West Bank.

Palestinian unemployment, which was nearly 40% in March, had eased to 30% at the end of June (including unpaid family labour).

A 12% increase in the value of cheques cleared through the banking system during January to August also raised hopes of greater activity in the private sector, which has particularly suffered under the intifada.

In addition, an embryonic poll of Palestinians and their attitudes to the economy suggested they were less pessimistic about the future than expected.

"I wouldn't call it optimistic, but there was certainly a sense that things could get better," says Mr Roberts.

Israeli rebound?

Similarly, in Israel, with the speedy conclusion of the war in Iraq, private consumption of goods and services grew by 10% during the second quarter, compared with the previous three months.

And, for the first time since 2000, the Israeli economy is expected to register positive growth this year.

In a report this month, the Ministry of Finance forecast "a moderate, positive turnaround in activity toward the end of 2003, that slightly accelerates in the course of 2004".

However, some argue that the improvements are still not vital enough to reduce Israeli unemployment - which is at a decade high of about 11% - or slash the government's budget running at 6% of GDP.

"The recovery does seem fairly fragile, particularly in the absence of any progress in the roadmap," says Mehmet Simsek, an analyst at Merrill Lynch.


In the Palestinian territories, any amelioration has been dwarfed by the scale of the economic problems.

The releasing of more work permits for Palestinian workers and the re-opening of some major routes, promised earlier in the summer, have stalled with the recent escalation of violence.

Palestinian youths protesting
You have to worry about a generation of children growing up under these circumstances
Nigel Roberts
World Bank
"That process has been arrested now," says the World Bank's Mr Roberts. "It is unrealistic to look for a major recovery."

He believes that serious social unrest has only been avoided by the granting of donor funding to the Palestinian Authority, which has underpinned the public sector.

The support of family networks and remittances from abroad have also helped to cushion the blow, making the economy a lot more resilient than many expected.

"But we are talking about unknown data quantities," he says. "There is now a question of how long it can last."

Bearing up

Mr Roberts adds that it is misleading to talk about "irreversible damage", but does point out that education and health have both been badly affected.

"You have to worry about a generation of children growing up under these circumstances... and the impact it will have on their world view and their cooperation in the economy."

Earlier in the summer, the World Bank team was working with the Palestinian Authority on an expenditure programme for 2004.

With the roadmap to peace underway, there was hope of a recovery. The exercise is due to be completed in October, but already the frame of reference has changed.

"It's more 'How do we carry on in these circumstances?'," says Mr Roberts.

In Israel, business and consumer confidence are also likely to remain stunted by the conflict.

"Personally without some sense of direction in the political picture, it's very difficult to see how a sustained recovery can come through," concludes Merrill's Mr Simsek.

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