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Morocco Business Forecast Report Q2 2014

  • February 2014
  • -
  • Business Monitor International
  • -
  • 35 pages

Core Views

Despite not possessing hydrocarbon wealth, the economy will remain a relative outperformer in North Africa over the medium term. Investor interest in the country as an export-oriented manufacturing hub for the European market, coupled with a burgeoning tourism industry, should bode well for Morocco’s underlying growth momentum in the next few years.
We expect the Moroccan economy to experience weak growth throughout 2014, after having reaped benefits from an agriculturebased recovery in 2013. The near-term outlook for non-agricultural economic activity remains weak, with subdued prospects for private consumption in particular. We forecast real GDP growth of 2.8% for 2014, from an estimated 4.4% in 2013. Morocco’s decision to end fuel oil and gasoline subsidies from February 2014 onward and phase out price support for diesel represents another step forward in the government’s reform plans. We have revised our forecast for this year’s fiscal deficit to 5.3% of GDP, down from an estimated 6.0% in 2013.

Key Risks To Outlook

Our forecasts for both economic activity and fiscal policy assume that Morocco will benefit from significant inflows of foreign aid from the Gulf Cooperation Council (GCC) and other organisations in 2014. Should this assistance fail to materialise, it would pose serious downside risks to the country’s outlook. The export sector remains highly vulnerable to any escalation of the ongoing eurozone sovereign debt crisis, and a return to recession in the eurozone would force us to make significant downward revisions to our growth forecast.

Table Of Contents

Morocco Business Forecast Report Q2 2014
Executive Summary 5
Core Views 5
Key Risks To Outlook 5
Chapter 1: Political Outlook 7
SWOT Analysis 7
BMI Political Risk Ratings 7
Foreign Policy 8
Gulf Ties To Deepen Further 8
Since 2011, Morocco has deepened its economic and investment ties with the six countries of the Gulf Cooperation Council. Money
from the Gulf is crucial to addressing the government's funding needs, as well as compensating for recent cuts to public investment
spending. The medium-term prospects for the economic relationship between the two parties are bright in our view, with the
development of Islamic finance in Morocco set to offer an extra incentive to Gulf investors.
Long-Term Political Outlook 10
Challenges For The Coming Decade: Scenarios For Change 10
The ongoing political and economic reforms undertaken by the government in recent years underpin our view that Morocco possesses
one of the most stable political climates in the region. However, we highlight that the uprisings that erupted throughout the Middle East
and North Africa at the start of 2011 indicate rising potential for further democratisation (voluntary or forced) of the authoritarian regimes
in the region, Morocco included.
Chapter 2: Economic Outlook 13
SWOT Analysis 13
BMI Economic Risk Ratings 13
Economic Activity 14
Weak Domestic Demand To Limit Growth 14
The near-term economic outlook for Morocco is subdued. We retain our forecast for real GDP growth of 2.8% in 2014, a reflection of
restrained domestic demand and the limited growth prospects of the agricultural sector. We project growth to rise to 3.7% in 2015, as
the non-primary sector recovers and the eurozone's recovery accelerates.
Fiscal Policy 17
2014 Budget Will Depress Domestic Demand 17
Morocco's 2014 budget, which aims to reduce the fiscal deficit to 4.9% of GDP, is in our view too reliant on tax hikes and cuts to public
investment spending. These will complicate an already weak domestic demand picture, supporting our cautious near-term outlook for
the Moroccan economy. Moreover, with limited control set on the public wage bill, we expect the government to miss its fiscal target by
a small margin, and forecast a deficit of 5.3 % of GDP.
Economic Policy 19
Government Maintains Reform Momentum 19
Morocco's decision to end fuel oil and gasoline subsidies and pha se out price support for diesel represents another step forward in the
government's reform plans. We have revised our forecast for this year's fiscal deficit to 5.3% of GDP (from 5.7% previously), down from
an estimated 6.0% in 2013. The outlook for the Moroccan debt market appears solid, and we see potential for some further upside in the
country's outstanding eurobonds.
Balance of Payments 21
Positive Signs For Exports 21
We estimate the current account deficit to have narrowed from 9.7% of GDP in 2012 to 7.5% in 2013, largely as a result of declining
imports of food and energy products. We forecast further improvements in the current account over the coming years as exports
recover, resulting in a deficit of 6.2% of GDP this year and 5.5% by 2016.
tab le: BALANCE OF PAYMENTS (Euro) 21
Monetary Policy 22
Benchmark Rate To Remain On Hold Over H114 22
With consumer price inflation expected to rise slightly throughout 2014, we retain our view that rate cuts are unlikely over the coming
quarters. That said, weak international food prices and our expectation of declining global oil prices in 2014 mean that we have adjusted
down our average CPI forecast for the year slightly, to 2.8% from 3.5% previously.
Regional Outlook: Islamic Banking 23
Islamic Banking: New Markets To Emerge 23
We expect 2014 to be a key year for the global Islamic finance industry as several new markets come to the fore. It has been our longheld
view that rather than becoming an integrated global financial system, Islamic banking will see the creation of regional hubs. Even
with this slightly fragmented outlook, we still expect significant growth for the sector. That said, we think the impact of low base effects is
beginning to wear off and we expect to see lower growth rates in the coming years.
Chapter 3: 10-Year Forecast 27
The Moroccan Economy to 2023 27
Private Demand-Driven Growth To Continue 27
We point to continued efforts to reform the economy and improve education, alongside investment in tourism and energy infrastructure,
as major positives underpinning Morocco's long-term growth trajectory. We are pencilling in average real GDP growth of 4.0% per
annum over the next decade, with GDP per capita increasing to US$5,18 0 over the same period. Nevertheless, we caution that several
issues, such as high unemployment combined with a growing youth population, if not addressed properly, could pose serious threats to
our positive long-term view.
table: Long-Term Macroeconomic Forecasts 27
Chapter 4: Business Environment 31
SWOT Analysis 31
BMI Business Environment Risk Ratings 31
Chapter 5: BMI Global Assumptions 33
Global Outlook 33
Fairly Benign Prognosis... With Risks 33
Table: Global Assumptions 33
Tab le: Developed States , Rea l GDP Growt H, % 34
Tab le: Eme rging Markets , Rea l GDP Growth , % 35

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