The Palestinian economy experienced a severe contraction in the second quarter of 2025, continuing the sharp decline seen in 2024 due to persistent conflict and restrictions. Economic activity remains critically low, with particularly devastating impacts in Gaza amid ongoing blockades, employment challenges, and fiscal pressures.
Overview of Economic Decline in 2025 Q2
As reported by the Palestinian Central Bureau of Statistics (PCBS) release dated September 23, 2025, the Palestinian economy showed continued contraction during the second quarter of 2025. Currency and deposits accounted for 59% of external assets, highlighting a fragile financial position [PCBS: The Palestinian Central Bureau of Statistics, 2025]. The contraction continues a trend of dire economic conditions following the extreme downturn in 2024, when the overall Palestinian GDP shrank by 26.6%, with Gaza suffering an 83.2% drop and the West Bank a 17% decrease.
Impact of Conflict and Restrictions on Economic Activity
According to PCBS and Economic Forecasts Report 2025 by the Palestine Monetary Authority (PMA), the main drivers of ongoing economic contraction include:
- Continued Israeli military aggression and blockades, leading to near-total suspension of economic activities in Gaza. Economic recovery in Gaza is projected to remain stalled through 2025 due to destruction and restricted access to materials.
- Severe movement restrictions and border controls in the West Bank, alongside raids and closures that hamper local commerce.
- Employment challenges, with Palestinian workers largely prevented from accessing jobs in Israel, significantly reducing income flows to Palestinian households.
- Fiscal challenges intensified by Israeli unilateral deductions from clearance revenues collected on Palestine’s behalf, exacerbating the fiscal crisis faced by the Palestinian Authority,
GDP and Sectoral Performance
The Palestinian economy's GDP continued to contract sharply during Q2 2025, mirroring a pattern detailed in PCBS reports:
- Gaza's economy contracted by approximately 83% cumulatively with little sign of recovery, largely due to destruction of infrastructure and continuous blockade,
- The West Bank economy declined by about 17%, heavily impacted by movement restrictions, reduced trade, and employment diminishment.
- The construction sector was among the hardest hit, with a 46% fall in value-added activities reported for 2024, continuing into 2025, underscoring halted development and reconstruction efforts.
- Services, agriculture, and trade showed relative but limited improvement compared to industrial and construction sectors which remain stagnant or shrinking.
Rising Unemployment and Inflation
Unemployment across Palestinian territories rose sharply, surpassing 50% in Gaza, where job opportunities remain nearly nonexistent due to blockades and destruction as detailed by PCBS. Inflation has also surged, with consumer prices rising by an estimated 46% in 2024, sharply eroding purchasing power and impacting household consumption capacity in 2025.
Outlook for 2025 and Challenges Ahead
According to the PMA’s baseline scenario forecast shared in the Economic Forecasts Report 2025, the Palestinian economy may show modest growth of 1.8% in 2025 compared to the unprecedented contraction seen in 2024. This forecast is contingent on the continuation of current conditions, including:
- A near halt in Gaza’s economic activities until year-end due to ongoing siege and destruction.
- Limited return of Palestinian workers to jobs in Israel — only about 30,000 permitted versus 177,000 prior to aggression.
- Continued fiscal pressures from Israeli deductions and uncertainty over clearance revenue transfers.
The PMA warns that this slight projected growth is not a true recovery but a statistical rebound from an extraordinarily low base. Without significant political progress, cessation of conflict, and extensive reconstruction, sustainable economic recovery remains elusive.
Statements from International Bodies and Analysts
While official Palestinian reports paint a bleak picture, international bodies including the World Bank and IMF corroborate the severity of economic conditions. The World Bank’s 2025 economic update highlights extensive stagnation in productive sectors and severe humanitarian challenges linked to economic collapse in Gaza and restricted economic activity elsewhere.
The UN Development Programme and humanitarian agencies emphasize that without accelerated reconstruction and easing of blockades, poverty and unemployment will intensify, deepening the socioeconomic crisis for Palestinians.
The Palestinian economy continues to suffer a profound contraction in the second quarter of 2025, reflecting the devastating impact of conflict, restrictions, and fiscal pressures. Gaza remains almost completely incapacitated economically, while the West Bank endures a constrained and shrinking economy under tightening controls. Though a modest growth projection for 2025 exists, it reflects a fragile baseline, with true recovery dependent on major political and humanitarian breakthroughs.
The combined analysis from PCBS, PMA, World Bank, and international agencies confirms that sustained conflict and restrictive policies are the principal barriers to Palestinian economic revival, underscoring the urgent need for peace and comprehensive reconstruction plans.