UN report on historic collapse

The Palestinian economy has suffered its worst collapse on record after two years of war in Gaza and severe Israeli restrictions across the occupied territories, according to a new report by the UN trade and development agency UNCTAD. The study says decades of growth have been wiped out, with living standards falling back to levels last seen more than twenty years ago. It warns that without a fundamental shift in policy and sustained international support, both Gaza and the West Bank face a protracted humanitarian and economic emergency.

UNCTAD’s report finds that per-capita income in the Palestinian territories has fallen back to roughly where it stood in 2003, erasing more than two decades of progress. The agency places the scale of the downturn among the ten worst economic crises worldwide since 1960, grouping it with countries hit by major wars or state collapse. For ordinary Palestinians, this abstract ranking is visible in soaring unemployment, the hollowing out of basic services and a sharp rise in food insecurity. Researchers say the current trajectory risks locking an entire generation into long-term poverty.

Gaza’s infrastructure has been “extensively damaged” by bombing and ground operations, the report notes, leaving housing, power networks, roads, hospitals and schools in ruins. Many factories and workshops that once anchored local industry are now completely destroyed, removing the means of production even if a ceasefire holds. The cost of rebuilding, it says, will run into many billions of dollars and take decades even under optimistic assumptions. Humanitarian agencies already describe Gaza’s economy as “non-functional”, with most people dependent on aid for food and shelter.

Restrictions on movement and trade – longstanding in Gaza and tightened during the war – are a central driver of the collapse. UNCTAD highlights severe limits on imports and exports, internal checkpoints and security closures that make normal commerce impossible. Businesses cannot reliably bring in raw materials or send finished goods out, undermining investment and planning. Banking and insurance services are also constrained, which makes it harder for firms to recover or expand. The report argues that this ‘closures regime’ has turned routine economic activity into a high-risk calculation.

Pressure on the West Bank

While Gaza has suffered the most visible destruction, the West Bank is also in the grip of its deepest downturn on record, the UN says. Movement restrictions, settlement expansion and rising settler–Palestinian tensions have weighed heavily on agriculture, tourism and small industry. Checkpoints and roadblocks disrupt workers’ daily commutes and fracture local markets. Many businesses now operate below capacity or have shut altogether because customer demand has evaporated and supply lines are too unreliable.

The Palestinian Authority’s fiscal crisis compounds the shock. Tax and customs revenues transferred via Israel have been repeatedly delayed or reduced amid political disputes, squeezing the government’s ability to pay salaries and fund basic services. Donor fatigue has set in after years of repeated appeals, and several traditional donors have shifted priorities to other crises. As a result, health, education and social welfare systems are deteriorating just as needs surge. UNCTAD warns that institutional erosion could make any eventual reconstruction slower and less effective.

The report stresses that economic recovery is impossible without a durable political solution and major changes to current restrictions. It calls for predictable, large-scale reconstruction funding but says aid alone cannot compensate for blocked trade routes and uncertain access. Analysts quoted in the study argue that improving freedom of movement for people and goods, restoring electricity and water infrastructure, and giving Palestinian institutions more control over economic policy are essential first steps. Without them, reconstruction projects may deliver new buildings but not sustainable livelihoods.

Internationally, the findings will fuel debate over how to structure post-war support for Gaza and the wider Palestinian territories. Some governments favour a multi-donor trust fund tied to governance reforms, while others urge a faster, less conditional approach focused on humanitarian urgency. Regional states worry that a prolonged economic depression will feed instability, renewed conflict and higher migration pressures. For now, UNCTAD’s message is blunt: unless policy constraints are eased and reconstruction is properly financed, the Palestinian economy will remain trapped in a cycle of destruction and partial repair.