Morocco: Growth will improve as harvests normalise

We expect a modest improvement in the outlook for Morocco in 2023 and we forecast real GDP growth of 2.4% this year, compared with an estimated 1.0% in 2022. Morocco has seen a challenging past several years through which the economy has not only been buffeted by the effects of the Covid-19 pandemic and Russia’s invasion of Ukraine, but also by poor weather domestically. While 2.4% would mark an improvement on last year, it would still be weaker than the pre-pandemic trend growth, reflecting the still-weak external environment. In 2024 we expect further strengthening in growth as global conditions start to normalise, predicting 3.5%. The Bank al-Maghrib forecast 3.0% in 2023 and 3.2% in 2024.

December rains bode well for 2023 growth

Q3 2022 GDP data for Morocco showed an improvement in output as it expanded 3.9% q/q, following the 2.5% and 0.5% contractions logged the previous two quarters. Q3 growth was at 1.8% y/y. However, the agricultural sector remained especially weak, down 15.2% y/y in Q3, and with no rapid recovery through the final months of the year it will have weighed on the year-end results. A serious drought has held back cereal and other harvests, impeding a sector that not only accounts for around 10% of GDP on average but is also a major employer, with implications therefore for private consumption also. This has taken on an even starker importance this year after the war in Ukraine precipitated a spike in global grain prices.

Real GDP growth, % y/y

Source: Haver Analytics, Emirates NBD Research

Looking ahead there have been positive developments through the end of 2022 as several weeks of rainfall has seen the water levels in reservoirs start to pick up once more from as low as 20% capacity to over 30%. We expect that a recovery in agricultural output will be the primary driver of growth in 2023 as it comes back towards more normal levels. On the other hand, the rest of the economy will likely remain under pressure as much of the rest of the world slows sharply or falls into outright recession. Immediate post-pandemic gains in sectors such as tourism have now been largely realised, and the outlook for 2023 is darkening as many of Morocco’s key source markets for visitors, such as the UK and various Eurozone countries, are expected to contract.

Domestic demand under pressure

From the domestic demand standpoint, high inflation, interest rate hikes and elevated unemployment will all act as impediments to growth. We expect that CPI inflation will slow from last year’s average 6.5% y/y (estimate) in 2023, as commodity price rises pass through the base and the MAD strengthens modestly against the dollar compared to last year’s depreciation. However, our forecast of an average 4.0% y/y is still high compared to the long-run average given Morocco enjoyed a sustained period of low and stable inflation prior to the pandemic. In this environment, the Bank al-Maghrib has already hiked by 100bps to 2.50% in 2022 (with a 50bps move in December), and we predict a further 50bps before the hiking cycle ends. The unemployment rate is steadily ticking down and should continue to do so this year as agriculture recovers, but at 11.4% it remains more than two percentage points higher than it was pre-pandemic.

Benchmark interest rate, %

Source: Bloomberg, Emirates NBD Research

There have been some protests against deteriorating conditions, although nothing to a degree that might disrupt economic activity. The authorities have been cognizant of the challenges facing households and over the 11 months to November, spending on subsidies and transfers was up 170% y/y, contributing to a budget deficit of around 5.5% of GDP for the year. With growth picking up and revenues set to rise, we forecast that this will narrow to 4.5% in 2023.