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Although the pandemic is well contained from a health perspective, the Covid-19 crisis combined with the downturn in oil prices will have severe economic consequences. With no real fiscal leeway, the government has implemented a very modest economic stimulus plan, while massive capital outflows and the collapse of oil exports have fuelled the rapid erosion of foreign reserves, bringing the naira under pressure. The deterioration in public and external accounts despite support from donor funds hampers any prospects of a recovery. Just four years after the last recession, real GDP is expected to contract significantly again in 2020. Without an upturn in oil prices, the rebound will be mild in 2021.
The Moroccan economy will see significant consequences from the coronavirus pandemic. Tourism has been at a standstill since March and will remain so until May at the earliest. The automotive sector and remittances from the Moroccan diaspora will also be hit by the crisis in Europe. However, and provided that the situation improves in the second half of the year, Morocco should be able to avoid recession. Macroeconomic fundamentals are solid and the country will benefit from a substantial fall in oil imports. Moreover, the authorities have reacted swiftly to dampen the shock.
Tourism is the main transmission channel of the Covid-19 pandemic to the Moroccan economy. Activity has been at a standstill since March and will remain so until May, at least. The losses will be significant in a sector that contributes to more than 8% of GDP, which is the highest level in the region. On a more positive note, two-thirds of the tourist season comes from June onwards, which might coincide with the easing of restrictions on travel in some countries even if the recovery of the activity would be gradual. The slump in tourism activity will weigh on growth and external accounts. The sector accounts for 15% of current account receipts. However, external stability does not look under threat. Forex reserves are comfortable and external debt is moderate
The end of the CFA franc and its replacement with the eco scheduled for next June address the legitimate desire of WAEMU member countries to manage what is already their single currency. Governance of the currency regime will change as the French Treasury pulls out of WAEMU entities, although it will still serve as the lender of last resort. Though the euro peg will limit monetary policy’s independence, it is necessary to shore up the macroeconomic stability of WAEMU, which is still fragile.
With anaemic growth, strong pressure on hydrocarbon revenue and substantial twin deficits, the macroeconomic situation is worrying. For the time being, forex reserves remain at comfortable levels but the speed and scale of their contraction is a major source of vulnerability over the short to medium term. Meanwhile, although certain decisions suggest a change of tack in the government’s position after years of economic protectionism, this progress is still too hesitant given the challenges. It is also of limited effectiveness whilst the business climate has not yet stabilised.
Between difficulties in Europe and a poor agricultural harvest, Morocco faces numerous headwinds. Growth slowed in 2019 for the second consecutive year. Yet domestic demand remains robust, bolstered among other factors by low inflation and an accommodating monetary policy. The authorities are also counting on major privatisation proceeds to soften fiscal consolidation without worsening public debt. Above all, the ongoing development of the automobile industry raises hopes for a rebound in GDP growth in 2020, while lower oil imports should help to reduce the current account deficit.
The government’s 2019 budget growth target of 3.1% is clearly out of reach. Indeed, real GDP growth stood at only 1.1% during the first six months of the year. Except tourism and to a lesser extent agriculture, most sectors have stalled, or even contracted (industry). Headwinds will remain powerful in the coming months, starting with the subdued demand from European countries. Despite signs of inflation stabilization, the monetary environment will also remain restrictive amid strong pressure on external accounts. Above all, uncertainties linked to presidential and parliamentary elections scheduled in September-October will continue to weigh on the business climate and thus investment. The economic recovery expected in 2020 will greatly rely on a steadfast implementation of reforms
The sub-Saharan Africa’s largest economy is having hard time to recover. External rebalancing has showed some progress. But imports remain well below pre-crisis levels. In addition, the rebuilding of FX reserves is being accompanied by increased financial vulnerability, which puts pressure on monetary policy as the authorities give the priority to exchange rate stability. Weak public finances are an additional constraint. In the short term, and despite its strong potential, the economy is expected to grow more slowly than the population. As well as improving macroeconomic stability, the authorities will have to address the deep-seated factors that are holding back the economy as a whole.
The Tunisian economy has begun to show signs of stabilisation. Inflation is falling, exchange rate pressures are easing and the government finally managed to uphold its commitment to fiscal consolidation in 2018. Yet the country’s prospects are still very fragile. Although the support of international donors is reassuring, the persistence of major external imbalances exposes the economy to shocks. Bank liquidity is already under pressure due to the tightening of monetary policy, and the high level of public debt calls for further reduction in budget deficits that could be hard to achieve. Above all, economic growth is still sluggish.
Nigeria is having a hard time recovering from the 2014 oil shock. Although the economy has pulled out of recession, growth remains sluggish at 1.9% in 2018. Moreover, the central bank’s recent decision to cut its key policy rate is unlikely to change much. With inflation holding at high levels, it is still too early to anticipate further monetary easing. Defending the currency peg is another constraint at a time when the stability of the external accounts is still fragile. Between soaring debt interest payments and the very low mobilisation of public resources, there is only limited fiscal manoeuvring room. It is hard to imagine a rapid economic turnaround without the intensification of reforms.
Morocco’s goods exports increased by more than 10% for a second year in a row in 2018, thanks to the good dynamics of phosphates exports and, above all, thanks to the rapid growth in the automotive industry. Since the launch of Renault’s factory in Tangier in 2012, exports of cars have doubled. They are now the largest source of exports and outlook is promising since several projects are in the pipe. The move to higher-value added export products improves the resiliency of the Moroccan economy to external shocks. However, spill-over effects remain limited notably due to a shortage of highly skilled labour force. Expected at 3% in 2019, the economic growth will be insufficient to reduce unemployment, especially for young people living in urban areas.
In late 2017, the authorities decided to resort to direct financing of the Treasury by the central bank to stabilise a dangerously deteriorating macroeconomic situation. The injection of funds helped rebuild bank liquidity via the reimbursement of the debt of state-owned companies. In the absence of a real fiscal impulse, and thanks to prudent monetary policy, inflation remains under control. Without structural adjustments, however, the situation could become very risky.