Palestinian Economy Shows Fragile Growth Amid Deepening Challenges
The Palestinian Economic Policy Research Institute (MAS) has released the 84th edition of its Economic Monitor, highlighting the continued challenges facing the Palestinian economy throughout 2025. The report notes that despite some improvement in economic indicators compared to 2024, economic activity, production, and income levels remain below their pre-war levels, while structural imbalances and pressures on households, businesses, and public finances continue to intensify.
The report reviews economic developments during the fourth quarter and the full year of 2025 against a backdrop of severe political, economic, and social conditions. Its first section provides a comprehensive assessment of key economic sectors, social development issues, and economic policies, while the second section examines a range of economic topics of local and regional relevance.
Although a ceasefire was announced during the final quarter of the year, 2025 brought little relief compared with the previous year. The human, economic, and physical devastation in Gaza continued to reach unprecedented levels, while movement restrictions in the West Bank intensified through the expansion of checkpoints and settlements. The Palestinian Authority's ongoing fiscal crisis, exacerbated by the continued suspension of clearance revenue transfers since mid-year, further weighed on economic performance.
According to the report, the Palestinian economy continued to suffer from the repercussions of the war, despite signs of partial recovery in demand and production compared with 2024. However, these indicators remained below pre-war levels.
Gross Domestic Product (GDP) grew by 4.3% in 2025 compared with 2024, reaching $12.46 billion. Growth was uneven, increasing by 3.4% in the West Bank and 34.2% in Gaza.
In the labor market, the unemployment rate in the West Bank stood at 28.7% in 2025, down by 2.8 percentage points from the previous year but still 10.3 percentage points higher than in 2023. The average daily wage reached NIS 136.5, while 16% of private-sector employees earned less than the minimum wage.
Public finance indicators remained under pressure. Net public revenues and grants totaled approximately NIS 11.2 billion in 2025, compared with NIS 11.7 billion the previous year. Public expenditure declined by 10.2% to around NIS 12.9 billion. The overall fiscal deficit before grants and aid reached approximately NIS 3.6 billion, while outstanding government liabilities climbed to NIS 18.8 billion. Public debt, measured in U.S. dollars, increased by 13.9% to approximately $4.8 billion.
The banking sector showed relative resilience. Credit facilities expanded by 5.4% to $12.6 billion, with the public sector accounting for 26.6% of total lending. Customer deposits rose by 16.4% to nearly $21.9 billion, while banking sector profits surged to $132.8 million, compared with $43.1 million in 2024.
Meanwhile, the Palestine Exchange recorded strong gains. The market capitalization of listed companies reached $4.9 billion by the end of 2025, marking a 21% increase from the previous year. The Al-Quds Index closed at 619.66 points, up 24.4% year-on-year.
Inflation remained a significant concern, rising by 10.5% in 2025 compared with 2024, eroding purchasing power across the Palestinian territories. Individuals earning income in U.S. dollars or Jordanian dinars while spending in shekels experienced an estimated 17.3% decline in purchasing power, driven by both inflation and the depreciation of the dollar against the shekel.
The report’s second section explores five key topics, including a study on the structure and evolution of Israeli settlements in the West Bank, the gradual rise in women’s labor force participation in Palestine, economic and social rights in the draft temporary constitution of the State of Palestine, the impact of the U.S. dollar’s decline on the Palestinian economy, and the World Bank’s role in financing development projects in Palestine, as discussed during a meeting between World Bank representatives, Palestinian business leaders, and academics.