(MENAFN- The Peninsula)  War in Gaza will contribute to a reversal of seven years of growth in the Palestinian economy, now expected to shrink by nearly four percent this year, the World Bank said in a report yesterday.

The Gaza Strip - run by Hamas - will see contraction of as much as 15 percent, while a slight recovery in the fourth quarter could push West Bank growth to about 0.5 percent, the World Bank said.

The report said the downturn was a result of the 50-day war between Israeli forces and militants in Gaza, restrictions on the flow of goods into the enclave by Israel and Egypt and a drop in foreign aid to the Palestinian Authority. Rebuilding Gaza after the conflict will cost $7.8bn, the PA estimated this month.

"The conflict and humanitarian tragedy in Gaza has made an already struggling Palestinian economy worse and put further stress on the fiscal situation of the Palestinian Authority (PA)," the report said.

Egypt will host a donors' conference on October 12 with the aim of raising reconstruction funds, and donor nations to the PA, which exercises limited self-rule in the Palestinian Territories, are due to convene on the sidelines of the UN General Assembly next week.

"The lack of a comprehensive peace agreement leads to a vicious cycle of economic decline and conflict," the report said of efforts to clinch a deal on Palestinian statehood in the occupied West Bank and the Gaza Strip that collapsed in April.

Growth, spurred largely by international donor funds, has been decelerating since 2012 and slowed to less than two percent in 2013, the bank said.

While restrictions on Palestinians' mobility in the West Bank have been eased, Israel still effectively blocks exports from Gaza, the bank said. ReuteRS