eco TV Week

Morocco: A sharp recession in 2020

7/17/2020

Despite swift reaction by the authorities and solid fundamentals, the Moroccan economy will suffer from a sharp recession in 2020 due to a powerful external shock and containment measures. The recovery will be modest in 2021.

Stéphane ALBY

TRANSCRIPT // Morocco: A sharp recession in 2020 : July 2020

Morocco gradually reopens its borders, having handled the COVID-19 crisis. But the authorities remain cautious. Moreover, economic consequences will be significant.

The High Commission for Planning expects a year-on-year contraction of 13.8% of GDP in the second quarter.

With containment measures implemented early, domestic demand collapsed. Moreover, being specialized in automotive exports to Europe and having a large tourism sector, Morocco had to endure a major external shock.

To make matters worse, financial transfers from the diaspora contracted as well. It is usually a stable financing source that helps to soften the impact of a crisis.

Even if the situation improves in the second half of the year, Morocco will be in recession in 2020. According to the HPC, economic activity should contract by 6%. The situation could have been worse without a swift response of the authorities. The Central Bank lowered its key interest rate to 1.5%. It was 2.5% before the crisis. The Central Bank also no longer require  deposits from commercial banks in the reserve account. And with the setting up of loans backed by a state guarantee, banks should be in position to support the economy and the most fragile sectors in particular. At the end of May, the bank loans dynamics was still well-oriented. Loans growth reached 6% year-on-year.

Macroeconomic fundamentals remain solid. Even though external imbalances have worsened, Forex reserves remain comfortable. Thanks to the drawing of 3 billion dollars from the IMF's Flexible Credit Line. The ability of the Moroccan State to cover locally its financing requirement at favourable conditions brings room of manœuvre even though debt levels is high.

There remains a question. What will the recovery look like?

Even though better crops are expected in 2021 following two difficult years, Non agricultural GDP growth  should be modest due to the persistence of domestic and external constraints. However, in the longer term, Morocco will probably have a part to play with the prospect of a reconfiguration of global industry. After all, the country became in a short period of time the first car manufacturer in Africa. Even though the sector is in a process of re-organisation, the proximity to mainland Europe, high-quality infrastructures and competitive labour costs are major assets which are unlikely to disappear.

View more videos Eco TV Week

On the Same Theme

The tourism slump, a threat for the economy 4/8/2020
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 fall in global oil prices should also help to keep current account deficit below 5% of GDP. Lastly, Morocco could draw on the IMF’s Precautionary and Liquidity Line if necessary.
Morrocan exports : profile improves thanks to the boom in the automotive sector 2/13/2019
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.

ABOUT US Three teams of economists (OECD countries research, emerging economies and country risk, banking economics) make up BNP Paribas Economic Research Department.
This website presents their analyses.
The website contains 2732 articles and 723 videos