Moroccan growth will outperform MENA oil importer peers in 2021

We hold a fairly bullish view on Moroccan real GDP growth in 2021, projecting an expansion of 5.2%. If realised this would represent the strongest expansion amongst MENA oil importers this year. However, this bullish outlook is predicated on an expectation that harvests improve and that the Covid-19 pandemic eases to a significant enough degree to allow a return in tourists, both of which factors are open to significant downside risk.

Drought has weighed on growth

The Moroccan economy contracted by -7.0% in 2020 as it was impacted not only by the negative effects of the pandemic crisis, but also continued drought and resultant poor harvests. Regions of Morocco have had such little rain over the past two years that water from reservoirs intended for agriculture have had to be diverted to urban centres in order to ensure sufficient drinking water, and this has weighed heavily on the farming industry. Agriculture usually accounts for around 12.0% of Moroccan output, and as it has undergone eight consecutive quarters of negative y/y growth over the past two years, this has weighed on the Moroccan economy as a whole. Our headline growth forecast for Morocco is based in part on a recovery in the Moroccan agricultural sector, as even a return to the baseline average output prior to the past two years would imply growth of 7.0% compared to this year. However, there is of course by no means any guarantee that the drought will not extend for a third year, or that harvests will otherwise disappoint, in which case Morocco’s growth potential would be  lower.

Real GDP growth, % y/y

Source: Haver Analytics, Emirates NBD Research

Pandemic not over yet

As with most of the rest of the world, Morocco’s economy was also impacted by the pandemic crisis last year as a three-month lockdown curbed activity. This was especially apparent in sectors such as hotels & restaurants, which contracted by an average -54.1% y/y over the first three quarters of 2020, and transport, which averaged -30.4%. Looking ahead, this will likely remain the case through the start of 2021 at least even if not to the same degree. Even as vaccination drives have started in many countries, the disease continues to record high new cases numbers each day all the same and Morocco is no exception. The daily number has fallen from the November peak, but at 1,200 it remains high. As such, measures such as the three-week night time curfew and closure of restaurants in some cities implemented in late December will likely remain commonplace until there has been a marked fall in cases or a vaccination rollout. Morocco’s planned intensive vaccination programme, which was scheduled to start in December, has been delayed, with Prime Minister Saad Dine El Otmani blaming global markets for causing scarcity when speaking in parliament on January 19.

Nevertheless, our expectation is that as vaccination programmes move forward both in Morocco and in important tourism source markets, things will start to improve from some point during the second quarter, and that base effects after the huge drops seen in some of these sectors last year will enable a strong expansion this year. We expect that the tourism sector in particular should perform comparatively well as visitors return to the country, many of them eager to spend the high level of savings they have made over the past 12 months. However, as with the rains, the risks to this outlook are significant should the virus prove more resilient and extend further into 2021 than anticipated.

Twin deficits widened last year

Despite the impact of the pandemic and drought on the Moroccan economy, the country has remained on a relatively secure fiscal footing. We estimate that the fiscal deficit did widen last year as revenues were curbed and social spending ramped up, but only comparatively gently, hitting -4.9% of GDP compared to -4.0% the previous year (though this is of course aided in part by the sizeable contraction of the GDP denominator). Meanwhile we estimate that the current account balance widened from -4.1% to -5.3% of GDP, with a drop in imports (down -16.5% in H1) and robust remittances helping to offset the fall in exports. The country did draw on its IMF PLL line for the first time since the provisional support was agreed in 2012 last year, but in November the Fund announced that Morocco would pay back part of the USD 3bn early. Challenges will remain in 2021, but given the economic impediments of the past year, Morocco is starting the year on a comparatively stable footing.

Fiscal deficit remains manageable

Source: Haver Analytics, Emirates NBD Research