OECD Economic Outlook, Volume 2023 Issue 1

Morocco

Growth will recover to 3.5% in 2023 and 3.7% in 2024 as global economic tensions ease and foreign demand for goods and services rebounds. Since rainfall during the winter season has been higher than in the previous year, agriculture can contribute more strongly to economic activity. Inflation has put pressure on the purchasing power of households and businesses, but is expected to gradually decline over the coming two years. Severe droughts would negatively affect the outlook.

Keeping inflation low and supporting the economy will require a balanced policy mix. Gradual fiscal consolidation will help to rebuild buffers that have been used to support the economy, but supports for vulnerable households should remain in place. Monetary policy has become less accommodative, but the central bank should increase rates further if inflation remains high. Structural reform priorities include boosting private investment, strengthening the role of women in the labour market and accelerating preparations to increase resilience against climate-related risks.

Activity is rebounding after a weak spell

Economic activity is set to accelerate in 2023 following weak growth of 1.1% in 2022. Recorded rainfall over the winter season was higher than during the previous very dry season, allowing agricultural production to recover, although precipitation is still below historical averages. Business confidence is improving, helped by strong export performance in early 2023. The services sector is benefiting from booming tourism activities that were above pre-pandemic levels by March 2023. Headline and core consumer price inflation started to decline in March 2023 and stand at around 7.8% in April year-on-year. Weak agricultural production in 2022 has contributed to lower labour market participation, particularly by women. Female unemployment has slightly increased whereas the aggregate unemployment rate has declined to 11.8%.

Morocco: Confidence and inflation indicators

Source: Bank al-Maghrib, Haut-Commissariat au Plan.

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Morocco: Demand, output and prices

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Morocco is heavily dependent on energy and food imports and strongly affected by rising global prices and the terms-of-trade shock as a consequence of Russia’s war of aggression against Ukraine. The improved outlook for Morocco’s main trading partners in Europe has boosted exports. A precautionary Flexible Credit Line of USD 5 billion from the IMF was approved at the beginning of April to provide buffers in the context of the risk of a widening current account deficit.

Monetary and fiscal policy is adapting to a changing environment

The central bank has raised its policy rate several times, from 1.5% in September 2022 to 3% in March 2023, and a further increase of 50 basis points is expected during the year. This has also helped to stabilise the Moroccan dirham, which depreciated against the euro in 2022 but has started to recover since January. The 2023 budget, tabled in October 2022, foresees gradual fiscal consolidation through raising revenues and reduced spending pressures from food and energy subsidies due to falling prices, supported by recent strong revenue outturns. Support to cushion the impact of rising prices will remain in place in 2023 and has helped to limit the pass-through from global commodity prices to households and companies, including through subsidies for wheat, gas and electricity.

Foreign demand and agricultural resilience support growth amid persistent climate-related risks

Real GDP growth is projected to reach 3.5% in 2023 and 3.7% in 2024 helped by a favourable harvest season and stronger external demand. A better performance in the agricultural sector will translate into higher employment, especially in rural regions. Exports will benefit from the recovery in external demand from Europe and emerging-market economies, with stronger growth in high value-added sectors such as the automotive industry. Public consumption is expected to drive growth in domestic demand, but private consumption growth will be supported by falling inflation, rising remittances and job creation in agriculture, despite headwinds from higher interest rates. Investment will recover in 2023 and gain momentum in 2024 as the effects from reforms to facilitate private investment, including the new Investment Charter, materialise. Inflation is projected to gradually decrease to 3% in 2024, due to declining energy and food prices and monetary policy tightening. Risks to the downside include further droughts that would depress agricultural output and a worsening of the global environment that could affect trade prospects. More persistent inflation could hamper consumption and put a drag on economic activity by requiring the central bank to increase interest rates further.

Boosting productivity and adapting to climate change

Productivity enhancing reforms are needed to boost growth. Accelerating reforms to the education system and labour market policies would encourage better skills and labour market participation, especially among women. The New Development Model provides an important framework for the Moroccan economy, including the transformation to a digital economy and a significant strengthening of the social security system. Ongoing reforms to support private investment with a new Investment Charter and the development of a public fund to provide co-financing for private initiatives are welcome. Climate change requires sophisticated adaption strategies such as better water management to protect against droughts, along with mitigation policies that focus on the geographic potential for renewable energy production.