Unbalanced Growth

After two difficult years, the Moroccan economy will get a boost from an exceptional harvest. Yet this should not be allowed to mask the net slowdown in non-agricltural activity due to the European crisis. Similarly, although the twin deficits are shrinking thanks to the easing of international oil prices, they are still very high. For the moment, sovereign risks and the balance of payments crisis are kept in check thanks to a favourable debt profile and the IMF’s precautionary credit line. Yet the medium-term fiscal consolidation programme is still trailing behind schedule.

After two difficult years, the Moroccan economy will get a boost from an exceptional harvest. Yet this should not be allowed to mask the net slowdown in non-agricltural activity due to the European crisis. Similarly, although the twin deficits are shrinking thanks to the easing of international oil prices, they are still very high. For the moment, sovereign risks and the balance of payments crisis are kept in check thanks to a favourable debt profile and the IMF’s precautionary credit line. Yet the medium-term fiscal consolidation programme is still trailing behind schedule.

A misleading rebound
For several years, the Moroccan economy has proven to be fairly resilient, and 2013 will be no exception. Thanks to what looks like a bumper harvest, GDP growth is estimated at around 4.5% this year, placing Morocco at the head of the region’s oil importing countries. Yet this buoyant overall performance should not be allowed to mask the troubles the Moroccan economy is facing due to the crisis in the eurozone countries.

Whereas Q1 growth was relatively strong on the whole at 3.8% year-on-year, non-agricultural GDP rose only 1.9%, compared to 3.9% the previous quarter and 4.5% in full-year 2012. This net slowdown is largely due to the poor performance of the secondary sector, where value added contracted 2% year-on-year. The main reasons are the downturn in mining and construction, combined with sluggish manufacturing output. Similarly, the services sector grew mildly, up 3.6% vs. 5.4% in Q1 2012, even though all components continued to contribute to growth. On the demand side, the sharp deceleration in VAT revenues at the end of April signals a weakening in household consumption, even though inflation is relatively well under control (+2.8% for the year to May). Moreover, sluggish bank lending for capital goods reflects the slump in corporate investment. In contrast, foreign trade began making a positive contribution to growth in Q1 (+1.5 points). Yet this is due to a bigger contraction in imports than exports (down 4.4% and 0.6%, respectively), which cannot be considered a real improvement.

Some indicators suggest a slight rebound in economic activity over the rest of the year. Remittances from the Moroccan diaspora and tourism revenues have swung back into positive growth since April. Similarly, household consumption is expected to pick up with the increase in farm revenues. And yet, non-agricultural GDP is not expected to exceed 3.5% this year, the weakest performance since 2002 (with the exception of 2009). Moreover, the risks are mainly on the downside given the fragility of the eurozone and the country’s increasingly narrow fiscal manoeuvring room.

BY Stéphane ALBY

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