TRAUMA OF WAR WILL INTENSIFY GAZA’S ECONOMIC MISERY, WORLD BANK SAYS
▶ Psychological burden has contributed to an economic standstill in the enclave with little hope of improvement
The psychological trauma of war will exacerbate the longterm economic outlook for Gaza, where economic activity is already at a near standstill, a World Bank report has said.
The report, published yesterday, presented a grim outlook for the future of Gaza’s economy – and the Palestinian economy as a whole – as recent drone and missile strikes by Iran against Israel threaten to escalate a conflict that Arab states and the US have been trying to avoid.
Previous reports showed Gaza’s economy contracted by 86 per cent in the fourth quarter last year. Its long-term outlook remains just as bleak. World Bank economists said economic activity in the densely populated strip is at a virtual standstill, “with little promise of improvement”.
The long-term challenges for Gaza include the destruction of its assets and the famine and displacement its civilians are facing. The war has displaced about 1.7 million people to date and a recent UN report said more than a million civilians will experience famine unless more humanitarian assistance is delivered.
Also negatively impacting Gaza’s long-term economic future is the deterioration of mental health, the World Bank said.
Before the war, 58 per cent of adult Palestinians showed symptoms consistent with depression, according to the study. That includes about half of adults in the West Bank and 71 per cent of the adult population in Gaza.
“That trauma is reinforced by the economic disempowerment and the loss of sense of agency caused by high unemployment and a lack of economic prospects,” the World Bank said.
Economists also said extreme stress from displacement and destruction will further hinder Palestinians’ mental health, worsening their long-term productivity by blocking them from fully developing their education and skills. Economic losses from 2022 because of mental trauma equated to about 8.9 per cent of Palestine’s gross domestic product, the World Bank reported. And nearly all Gazans are presumed to have been exposed to a traumatic event.
“The psychological burden of the current conflict is expected to exacerbate the negative effect of conflict on the economy, contributing to a vicious spiral of poor mental health, lower economic activity and productivity, sustained high unemployment and poverty,” the World Bank said.
Overall, Mena economies are expected to return to low growth similar to the decade before the pandemic. The region’s GDP is projected to rise 2.7 per cent this year after a 1.9 per cent gain in 2023, the World Bank reported.
GCC economies are expected to climb 2.8 per cent this year and 4.7 per cent in 2025, largely driven by higher oil output due to phasing out of production cuts as well as growth in the non-oil sector, the multilateral lender said. “The region continues to grapple with high uncertainty, which may worsen existing fragilities in several Mena economies,” the report said.
The Israel-Gaza war, tepid growth and rising debt levels are all affecting the region.
The report, which was compiled before Iran’s retaliatory attack on Israel, said the economic impact of the war on Mena economies will depend on its duration and whether it spills into the region.
The attack prompted world leaders to call for de-escalation efforts, with the UAE urging “the utmost restraint”. G7 countries issued a joint statement saying they are working to “stabilise the situation and avoid further conflict”.
Egypt, whose economy has been affected by the Red Sea trade disruption, called for restraint. Egypt and Jordan are more likely to be affected in tourism, fiscal pressures and foreign exchange receipts than GCC nations or Morocco.
The World Bank has previously said Lebanon’s financial crisis is one of the worst since 1850. Monday’s report said the infrastructural damage caused by fighting in southern Lebanon has further weighed down its economic prospects.
“Even under a ‘confined conflict’ scenario, the spillover effects of the hostilities constitute another large shock to a country already in a political and institutional vacuum and mired in a years-old socioeconomic crisis,” the report said.
The tourism shock that Lebanon has faced since the fourth quarter of last year has affected its economy. Before the conflict, Lebanon’s economic growth was projected to slightly expand for the first time in years. Instead, it contracted 0.2 per cent, the World Bank said.