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Morocco Country Risk Report Q2 2016

  • February 2016
  • -
  • Business Monitor International
  • -
  • 41 pages

Core Views

Despite not possessing hydrocarbon wealth, the economy will remaina relative outperformer in North Africa over the medium term.Investor interest in the country as an export-oriented manufacturinghub for the European market and increasingly to West Africa, aswell as relative security compared to the rest of the MENA region,will bode well for Morocco's underlying growth momentum in thenext few years. The all-important agricultural sector will neverthelessremain exposed to weather, resulting in significant volatilityin headline growth.Morocco's foreign policy will remain stable over the coming years,aimed at strengthening its relationship with the EU and the GCCand looking to West Africa for trade and investment opportunities.The Western Sahara issue will remain at the forefront of Rabat'sforeign policy agenda, and we do not see any significant progresstaking place on this issue in the near future.Morocco will underperform in North Africa in 2016, on the back ofa lower-than-average harvest, which will significantly impact headlinegrowth directly and indirectly through private consumption.

We nevertheless maintain a positive outlook for improvements in theexternal sector, as the country will continue to attract a lot of interestfrom foreign investors. We forecast real GDP growth to reach 2.0%in 2016, well below the 4.4% estimated for 2015.The gradual coming on-stream of new energy sources over the nextfive years – as part of the National Energy Plan 2020 – will reducepressures on Morocco's current account and boost the country'sattractiveness for foreign investors. This structural evolution willbenefit the country's economic growth over the next decade.Average annual inflation in Morocco will remain close to 1.6% over2016, similarly to 2015, as rising food prices from a lower-thanexpectedharvest are compensated by a decrease in householddemand. This will allow the central bank to maintain its currentbenchmark interest rate at 2.75% throughout the year.

Table Of Contents

Morocco Country Risk Report Q2 2016
Executive Summary 5
Core Views5
Key Risks5
Chapter 1: Economic Outlook 7
SWOT Analysis 7
BMI Economic Risk Index 7
Economic Growth Outlook 8
Poor Harvest Worsening Growth Outlook8
Morocco's economic growth will slow down significantly over 2016, as agricultural production collapses on the back of a drought On the
upside, exports will continue to outperform, and investment will remain elevated, as the country pushes forward with its plan to become
a regional exporting hub between Europe and Africa As a result, we forecast growth to reach only 20% over 2016, compared to 44
%in 2015
GDP By Expenditure Outlook 9
TABLE: GDP GROWTH FORECASTS 10
TABLE: PRIVATE CONSUMPTION FORECASTS 10
TABLE: GOVERNMENT CONSUMPTION FORECASTS 10
TABLE: FIXED INVESTMENT FORECASTS 10
TABLE: NET EXPORTS FORECASTS 10
Fiscal Policy And Public Debt Outlook 11
Pension Reform Another Sign Of Market-Friendly Orientation11
The pension reform initiated by the Moroccan government is a positive step towards long-term fiscal consolidation, and runs in line with
the government's market-friendly economic orientation With strong opposition from the country's main unions, the incumbent coalition is
set to lose some support in the run-up to the 2016 parliamentary elections, but will remain favourite for the upcoming ballot
TABLE: MAIN REFORMS TO THE PENSION SYSTEM 11
Structural Fiscal Position 12
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES 12
External Trade And Investment Outlook 13
Exports To Continue Outperforming13
Morocco's current account deficit will continue to narrow over 2016, albeit at a slower pace than in 2015, given that rapid improvements
in the import bill will come to an end as global oil prices stabilise On the upside, exports will continue to outperform over the coming
months, driven by the autos and phosphate industries
TABLE: SELECTED AUTOS AND AERONAUTICS PROJECTS ANNOUNCED IN 2015 14
Outlook On External Position 15
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE 15
TABLE: BREAKDOWN OF IMPORTS IN 2014 16
TABLE: BREAKDOWN OF EXPORTS IN 2014 16
Monetary Policy 16
Inflation Picking Up From H21616
Moroccan annual inflation will remain subdued in H116, due to further weakness in global oil prices and record-high cereal stocks
keeping Moroccan food prices low This will last until H216, when rising global oil prices and lowering wheat stocks support CPI
acceleration As a result, we forecast annual inflation to reach 20% by the end of 2016, compared to 06% at the end of 2015
Monetary Policy Framework 17
Chapter 2: 10-Year Forecast 19
The Moroccan Economy To 2025 19
Diversified Economic Base Underpins Bright Future19
We point to an increasingly diversified economic base, an attractive geographical position, and strong investments in tourism and
energy infrastructure as major positives underpinning Morocco's long-term growth trajectory Nevertheless, we caution that several
issues, such as persistently high unemployment and poverty combined with shortcomings in the quality of education, if not addressed
properly, could pose serious threats to our positive long-term view
TABLE: LONG-TERM MACROECONOMIC FORECASTS 19
Chapter 3: Political Outlook 23
SWOT Analysis 23
BMI Political Risk Index 23
Domestic Politics 24
Spat With EU Will Not Last24
The diplomatic crisis between Morocco and the European Union related to the Western Sahara will subside rapidly, as both parties
will overlook the issue to work towards deeper political and economic cooperation As a result, Morocco will continue to increase its
diplomatic importance in the MENA region, and remain a central ally for the EU
TABLE: POLITICAL OVERVIEW 24
Long-Term Political Outlook 26
Challenges For The Coming Decade, Scenarios For Change26
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, high economic disparities in the country and rising corruption could lead
to social unrest of the type that spread across the Arab world in 2011 In addition, the lure of radical militancy will continue to appear
as a way out for young people, as the significant number of Moroccan nationals fighting with radical jihadist group IS in Iraq and Syria
attests
Chapter 4: Operational Risk 29
SWOT Analysis 29
Operational Risk Index 29
Operational Risk 30
TABLE: OPERATIONAL RISK SCORES 30
Trade Procedures And Governance 31
TABLE: MIDDLE EAST AND NORTH AFRICA - TRADE PROCEDURES AND GOVERNANCE RISK 31
TABLE: EXPORT AND IMPORT DOCUMENTS 32
TABLE: TRADE PROCEDURES BREAKDOWN 32
Vulnerability To Crime 33
Chapter 5: BMI Global Macro Outlook 37
Global Macro Outlook 37
Downside Risks Gather Momentum37
TABLE: GLOBAL ASSUMPTIONS37
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %38
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % 38
TABLE: EMERGING MARKETS, REAL GDP GROWTH, % 39
TABLE: MACROECONOMIC DATA and FORECASTS 41

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