Morocco

The Moroccan economy is likely to post y/y growth of around +3% in 2023, reflecting weak demand growth in its major trading partners. The export of agricultural goods, phosphates and manufacturing (automotive components, conductors and wires) will reduce the external deficit, while food-related inflationary pressures are likely to normalize. Annual inflation reached 6.6% in 2022, with food prices rising by 11.0% and non-food prices by 3.9%, mainly driven by transportation prices, which increased by 12.2% in 2022. The central bank raised its policy rate by 100bps to 2.5% last year in two steps in September and December, hoping to contain inflationary pressures. Transport price growth has moderated in recent months, while food prices remain the main driver of inflation (15.5% y/y).

The forecast for an acceleration in economic growth in 2023 is primarily based on expectations of a recovery in the agricultural sector, but climatic conditions, water scarcity and the need to prioritize domestic consumption and domestic electricity generation will weigh on harvests. The level of rainfall in December was 24% lower than the 10-year average and 8.4% lower than the same period in 2021. In late 2022, the government decided to reduce the amount of water from the kingdom's dams that is used to irrigate farmland by 75%. In January 2023, the water reserves in the dams were 24% full, which means that only 20% of it can be used for irrigation and the rest will be kept for drinking. Drought severely impacted Morocco's 2022 agricultural production: The last cereal harvest fell by two-thirds to 3.4mn tons, reducing its contribution to GDP growth by around 2pps. Morocco had to increase grain imports by +80% between January and October 2022 to meet domestic demand. However, the level of rainfall between September 2022 and early February 2023 has risen by +88% to an average of 72 millimeters, while water resources exceed 2.1bn cubic meters, which is double the size than in the same period of 2022.

The other risk to the outlook is a resurgence of the price of commodities that Morocco imports. The economy is heavily dependent on energy imports and therefore on volatile oil and gas prices. Last year, the energy bill more than doubled due to higher fuel prices. The government plans to invest approximately USD195mn to increase fuel-storage capacity by the end of 2023. This expansion is expected to add 13 days to the current capacity, which is enough to cover needs for one month.

Finally, heightened diplomatic tensions with neighboring countries and the EU could also weigh on the economic outlook in 2023.

The steps taken to reform state-owned enterprises, as well as the activation of the Mohammed VI Fund and the implementation of the new Investment Charter, are widely seen as potential catalysts for foreign direct investment. While much remains to be done to address water scarcity, progress in liberalizing the electricity market should accelerate the transition to renewable energy. On the other hand, the business community is keeping a close eye on the protection of property rights and the independence of the judiciary.

The country remains in the world's second-to-last decile for the employment rate (39%, equivalent to 10.7mn people). The shift towards services, increased crop volatility due to drought and limited prospects in rural areas are increasing urbanization and converging labor-related claims on cities. The services sector is the largest employer with 47% of the workforce, followed by agriculture (29%), manufacturing (12%) and construction (11%). Traditionally, the unemployment rate is higher in urban areas, reaching 15.8% in 2022 – down from 16.9% in 2021. Unemployment is lower in rural areas (5.2%) and remains higher among young people aged 15 to 24 (32.7%), university graduates (18.6%) and women (17.2%).

The relationship with the EU has slightly deteriorated in recent months, following increased controls on journalists and critical voices, uncertainties surrounding Morocco’s plan for the Western Sahara and corruption investigations involving current and former members of the EU Parliament. Negotiations for a Deep and Comprehensive Free Trade Area with the EU were launched in March 2013 but were put on hold the following year at Morocco’s request. In January 2023, anti-dumping tariffs on aluminum road wheels were extended to Morocco to prevent Chinese exports from circumventing existing EU tariffs via Morocco – a similar move was adopted in February 2022 on glass fiber fabrics.

The king is less likely to be blamed for economic problems than the government, although his personal wealth is likely to come under increasing criticism and public scrutiny. The likelihood of large and organized riots as well as targeted boycott campaigns in response to increased living costs, such as those conducted in 2018 and 2020, remain elevated. Hotspots include major city squares, the parliament, ministries and local government offices.