ANATOMYofSTAGNATIONA Status Report on Labor Markets, Firm Dynamics, and Macroeconomic Trends in the West Bank and Gaza SUMMARY REPORT ANATOMYofSTAGNATIONA Status Report on Labor Markets, Firm Dynamics, and Macroeconomic Trends in the West Bank and Gaza © 2025 International Bank for Reconstruction and Development / The World Bank This report is a product led by the Prosperity Practice Group of the World Bank’s Middle East and NorthAfrica, Afghanistan and Pakistan (MENAAP) Region. Visitwww.worldbank.org/en/country/westbankandgazafor more information. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views ofThe World Bank, its Board of Executive Directors, or the governments they represent. The World Bank doesnot guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, andother information shown on any map in this work do not imply any judgment on the part of The World Bankconcerning the legal status of any territory or the endorsement or acceptance of such boundaries. Nothing herein shall constitute or be considered to be a limitation upon or waiver of the privileges andimmunities of The World Bank, all of which are specifically reserved. Rights and Permissions This work is available under the Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO) http://creativecommons.org/ licenses/by/3.0/igo. Under the Creative Commons Attribution license, you are free tocopy, distribute, transmit, and adapt this work, including for commercial purposes, under the following conditions: Attribution—Please cite the work as follows: World Bank. 2025, Anatomy of Stagnation – 2025.Washington, DC. License: Creative Commons Attribution CC BY 3.0 IGO Translations—If you create a translation of this work, please add the following disclaimer along with theattribution: This translation was not created by The World Bank and should not be considered an official WorldBank translation. The World Bank shall not be liable for any content or error in this translation. Adaptations—If you create an adaptation of this work, please add the following disclaimer along with theattribution: This is an adaptation of an original work by The World Bank. Views and opinions expressed inthe adaptation are the sole responsibility of the author or authors of the adaptation and are not endorsed byThe World Bank. Third-party content—The World Bank does not necessarily own each component of the content containedwithin the work. The World Bank therefore does not warrant that the use of any third party-owned individualcomponent or part contained in the work will not infringe on the rights of those third parties. The risk of claimsresulting from such infringement rests solely with you. If you wish to re-use a component of the work, it isyour responsibility to determine whether permission is needed for that re-use and to obtain permission fromthe copyright owner. Examples of components can include, but are not limited to, tables, figures, or images. Allqueries on rights and licenses should be addressed to: The World Bank, Office in Jerusalem, P.O. Box 54842,Jerusalem, 97200. This document reflects information and developments available as of July 30, 2025. Table of Contents Executive SummaryvIntroductionxiii1MACROECONOMIC TRENDS: ASTALLED GROWTH MODEL12FIRMS: CONSTRAINTS, RESILIENCE, AND DECLINING INVESTMENT73LABOR MARKET: THE CHALLENGE OF A DEMOGRAPHIC SURGE WITHOUT JOBS114THE ESCALATION OF THECONFLICT: ECONOMIC DEVASTATION ANDSTRUCTURAL SCARRING19Macroeconomic impacts19Labor Market Impacts20Firm-Level Impacts215PALESTINIAN ECONOMIC GOVERNANCE IN HISTORICAL PERSPECTIVE23Fiscal Rigidities and Sustainability Risks256POLICY CONCLUSIONS AND NEXTSTEPS27Building Foundational Capabilities28Fostering Macroeconomic Stability and a Competitive Business Environment29Mobilizing Private Capital29 Executive Summary This report, titled“Anatomy of Stagnation: A StatusReport on Labor Market, Firm Dynamics, and Macro-economic Trends in the West Bank and Gaza”aimsto offer a timely and comprehensive diagnostic ofgrowth and labor patterns in the Palestinian econ-omy.Drawing from a rich blend of data, includ -ing satellite-based nightlight imagery, mobile phoneusage patterns, firm- and household-level surveys,and traditional macroeconomic indicators, it exam-ines the underlying anatomy of economic stagnationin the Palestinian territories, posing a central ques-tion:why does the Palestinian economy remain persis-tently fragile, and what can be done to shift its growthtrajectory?While the study explores a range of struc-tural and institutional factors, it also acknowledgesthe overarching impact of longstanding conflict, theoccupation, and movement restrictions, which haveshaped and continue to shape the economic land-scape in profound ways. Ultimately, the findings pointto the significant untapped potential that could beunlocked in a stable and peaceful environment, offer