Palestinian Economy Falters

RAMALLAH (Reuters) -

The Palestinian economy in Yehudah and Shomron shrank for the first time in a decade in the first half of 2013, the World Bank said, blaming a decline in foreign aid and restrictions imposed by Israel.

Israel has pointed repeatedly to strong growth in the region in recent years as vital to restoring relative stability to the area, so news of a worsening outlook will raise concerns of a possible rise in unrest.

The World Bank blamed the 0.1 percent economic contraction on a decline in foreign budget support to the aid-reliant Palestinian government, saying it exposed the “distorted nature” of the economy.

The Palestinian-administered area, located in Yehudah and Shomron and Gaza Strip, saw annual economic growth of some 9 percent in the years 2008-2011. That slowed to just 1.9 percent year on year in the first six months of 2013, with Palestinian Authority GDP contracting.

“The faltering nature of the peace process and the persistence of administrative restrictions as well as others on trade, movement and access have had a dampening effect on private investment and private sector activity,” the Bank said.

It said donor aid had fallen by more than half in 2012. Economists have blamed the drop on the global economic downturn, dwindling U.S. funding and Arab world uprisings that diverted the attention of wealthy Gulf states.

The years of rapid growth have brought little obvious improvement in people’s lives. Unemployment and poverty have grown to affect around a quarter of Palestinians.