Emerging

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EcoEmerging// 4 quarter 2018  
economic-research.bnpparibas.com  
Morocco  
Mixed prospects  
Morocco’s performance was mixed during the first half of 2018. The economic growth recovery is still mild despite good  
performances in the tourism and manufacturing sectors. Social unrest is rising against a backdrop of endemic unemployment,  
while the economy is hit again by a swelling energy bill. After several years of consolidation, the twin deficits are expected to widen  
slightly this year. Although Morocco’s macroeconomic fundamentals are still solid, structural reforms are needed to raise the  
growth potential.  
Morocco’s economic development largely hinges on its image of  
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-Forecasts  
stability. Reform efforts are continuing, as illustrated by the  
flexibilisation of the exchange rate regime introduced in January,  
and in many respects Morocco is still one of the region’s most  
attractive economies (quality infrastructure, active industrial policy).  
Yet endemic unemployment is fuelling an upsurge in social  
demands at a time when the economy is being squeezed by rising  
oil prices. Despite solid macroeconomic fundamentals, efforts to  
rebalance the public and external accounts risk coming to a halt  
while economic growth is still too modest.  
2016  
2017 2018e 2019e  
Real GDP growth (%)  
1.1  
4.1  
3.0  
2.9  
Inflation (CPI, year average, %)  
Central. Gov. balance / GDP (%)  
Central. Gov. debt / GDP (%)  
Current account balance / GDP (%)  
External debt / GDP (%)  
1.6  
0.7  
2.2  
1.6  
-4.3  
-3.5  
-3.7  
-3.4  
64.9  
-4.4  
65.1  
-3.4  
65.7  
-4.0  
66.5  
-4.3  
47.8  
24.3  
47.1  
25.3  
45.5  
24.7  
46.6  
25.2  
Forex reserves (USD bn)  
Structural constraints dampen the recovery  
Forex reserves, in months of imports  
Exchange rate USDMAD (year end)  
6.5  
6.1  
9.4  
5.4  
9.4  
5.2  
9.6  
10.1  
With real GDP growth of only 2.4% in Q2, compared to 3.2% in Q1  
and an average of 4.1% in 2017, the Moroccan economy is losing  
steam. The slowing of growth in the agricultural sector to 3% was  
expected after a very strong 2017 performance (+13%). Activity  
outside agriculture, in contrast, was surprisingly weak, with non-  
agriculture GDP growth dropping to 2.6% in Q2 2018, 1 point lower  
than in the previous quarter and the lowest level since Q2 2016.  
e: BNP Paribas Group Economic Research estimates and forecasts  
2- Sector contribution to GDP growth  
Non-agriculture GDP, in p.p  
Value added of the agricultural sector, in p.p  
GDP, y/y % change  
From a sector perspective, the situation is mixed. Momentum  
remained strong in the tourism sector after a record year in 2017  
with 11.3 million visitors. In H1 2018, the number of arrivals and  
overnight stays was up 10%. The manufacturing sector also held up  
well, with exports (excluding phosphates) up 8.5% in the first  
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4
3
2
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0
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months of the year, thanks to the development of the automotive  
industry. In contrast, value added in the mining sector contracted  
.1% in Q2 after increasing 13.8% in Q2 and 15% in FY 2017.  
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Another troubled sector is construction, which is still absorbing past  
excesses (+0.9% in Q2). In terms of domestic demand, household  
consumption has held up rather well in the face of rising inflationary  
pressures, but investment remains sluggish. At the end of August,  
bank lending to the private sector rose only 1.2% (excluding  
households).  
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010 2011 2012 2013 2014 2015 2016 2017 2018  
Source: HCP, BNP Paribas  
Despite the expected acceleration in H2, economic growth will  
barely reach 3% this year before slowing slightly to 2.9% in 2019,  
due to the 0.5% contraction in the value added of agricultural sector  
and youth unemployment in particular (26.5%). Numerous structural  
constraints are hampering the Moroccan economy. Despite the  
boom in automotive production since 2012, as well as in aeronautics  
albeit to a lesser extent, the share of manufacturing sector in the  
GDP is still low at less than 16%. Shortage of highly skilled labour is  
a problem. According to the OECD, 60% of the active population  
have no degrees whatsoever while those with degrees are having a  
hard time finding work (the unemployment rate for university  
graduates is 28%). Without a better use of human resources, spill-  
over effects of these new industries to the rest of the economy will  
(
10-12% of nominal GDP, 38% of the working population). Looking  
beyond the growth vulnerability to the performance of agriculture,  
what is most disturbing is how hard it is for the non-agricultural  
sector to regain momentum. At an estimated 3.1% in 2018 and  
3.4% in 2019, non-agriculture GDP growth will undoubtedly surpass  
the 2017 low of 2.8%, but it is still a far cry from the levels  
necessary to reduce the high unemployment rate (10.2% in 2017),  
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EcoEmerging// 4 quarter 2018  
economic-research.bnpparibas.com  
thus remain limited. The business climate also needs to be  
improved. The investment rate already fell by 4 points between  
3- External accounts deteriorate moderately  
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012 and 2017.  
Current account deficit  
Oil imports  
4 % of GDP  
Worsening of macroeconomic imbalances  
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Despite the emergence of some signs of weakness, the  
macroeconomic environment is still favourable for economic activity.  
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0
8
6
4
2
0
Inflation has accelerated under the double impact of higher food and  
fuel prices, but now seems to have peaked. The inflation rate  
dropped to 1.7% in August, from an H1 average of 2.4%, thanks to  
a rather sharp easing of food prices. With core inflation holding  
steady at 1.2%, the inflationary risk seems to be limited. This means  
the central bank should be able to maintain a low policy rate, which  
has held at 2.25% since March 2016.  
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010 2011 2012 2013 2014 2015 2016 2017 2018e 2019e  
In the first 8 months of the year, the trade deficit widened by 10%  
due to the swelling of the energy bill (+19%) and imports capital  
goods (+12%). These two items account for 40% of imports.  
Pressures will remain strong in the short term since oil prices are  
expected to stay high in 2019, and the country will continue to  
develop major industrial projects. Despite hefty tourist revenues  
Source: Office des changes, BNP Paribas  
debt is denominated in foreign currency, and attractive financing  
conditions in the local market help to debt service at a moderate  
level. Interest payments absorb only 12% of government revenues,  
and the apparent cost of the debt is 4.2%, one of the lowest rates  
among the region’s oil-importing countries. Even so, this should not  
mask the rise of the government debt by nearly 20 points of GDP  
since 2009. The country’s debt dynamics will have thus to be reined  
in. But little fiscal manoeuvring room and rising social demands  
should make the task difficult to achieve.  
(
15% of current account receipts) and the launch of a new  
automobile production unit in 2019 (automobiles are now the main  
source of exports, accounting for 24% in 2017), the current account  
deficit is likely to widen above 4% of GDP for at least the next two  
years, from 3.4% in 2017.  
At this level, the coverage of external financing needs is  
manageable. Net foreign investment flows are robust at about 1.5%  
to 2% of GDP a year, and the government can access the  
international financial markets under favourable conditions. A  
USD 1 billion Eurobond issue is already being planned for 2019.  
External debt is moderate at 45% of GDP, two-thirds of which is  
held by the state and state-owned companies, and the country’s risk  
premium is just at 159 basis points (bp), one of the lowest among  
the emerging countries. Moreover, Morocco is not exposed to  
portfolio investment flows, which is a rather positive factor in the  
current environment. All in all, we expect Morocco’s foreign reserves  
to remain at a comfortable level of more than 5 months of imports of  
goods and services.  
Yet the current account is still highly vulnerable to commodity prices.  
The energy bill accounts for more than 15% of imports, while  
phosphates make up 18% of exports. Similarly, the tourist sector is  
vulnerable to fluctuations in the local and regional security situation.  
A similar observation can also be made about public finances. The  
budget deficit was trimmed to 3.5% of GDP in 2017, from 6.8% in  
2012, but is expected to widen again this year to 3.7%. Budget  
execution at the end of August reveals some of the difficulties that  
lie ahead. Although spending as a whole is tightly controlled, the  
gains generated by the overhaul of the subsidy system are now over.  
Once again, fiscal revenues fell short of expectations, confirming a  
trend that has seen their value in percentage of GDP erode by more  
than 2 points since 2012. As a result, government debt should  
continue to rise to 65.7% of GDP in 2018. At this stage, debt  
sustainability is not called into question. Less than a quarter of the  
QUI SOMMES-NOUS ? Trois équipes d'économistes (économies OCDE, économies émergentes et risque pays, économie bancaire) forment la Direction des Etudes Economiques de BNP Paribas.
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