Morocco's stable growth and improved credit ratings forecast a strong 2018

Stronger agricultural growth, combined with increased export revenue, saw Morocco’s economy expand at a faster pace in 2017, with promising prospects for 2018. Local and international GDP growth estimates for 2017 were similarly optimistic: Morocco’s central bank, Bank Al Maghrib (BAM), put expansion at 4.1%, while the IMF estimates released in December 2017 put growth at 4.4%, well above the 1.4% of 2016.

Growth was fuelled by a rebound in agricultural output, as a bumper crop resulted in agricultural value-added growth of 14.7%, according to BAM, reversing the 2016 decline of 12.8%, which was largely caused by prolonged drought conditions. Looking ahead, agriculture’s production levels are expected to expand at a more moderate pace, with BAM forecasting growth of 3.3% in 2018, picking up to 3.6% in 2019. This should see overall GDP growth level out at around 3.1% in 2018. With agricultural growth set to ease, both BAM and the IMF project non-agricultural growth will take up some of the slack, expanding by 3.4% in 2018 and 3.6% in 2019.

The strong 2017 performance was also supported by a 9.4% increase in outbound shipments, with higher earnings from the export of phosphates, as well as agricultural and agri-food products boosting trade earnings. This was only partly offset by a 6.7% rise in the import bill, mainly due to rising hydrocarbons prices.

HOLDING STEADY: Low inflation and a supportive monetary policy have helped boost Morocco’s economy. Headline inflation has eased substantially, from 1.6% at end-2016 to 0.7% in December 2017, mainly thanks to stable food prices. However, core inflation gained some momentum, edging up from 0.8% to a projected 1.5% in 2018. Forecasts from BAM see this upward trend continuing into 2019 to reach 1.9%, on the back of rising domestic demand and imported inflation. The central bank closed 2017 by announcing it would keep its benchmark lending rate unchanged at 2.25%. BAM has maintained its key rate at this accommodative level since March 2016, when it reduced it by 25 basis points.

STABLE TO POSITIVE: Improved prospects for Morocco’s economy prompted ratings agency Moody’s to upgrade its outlook from stable to positive in February 2017. Citing its rising external position and declining fiscal deficit, Moody’s affirmed the country’s issuer and senior unsecured ratings at “Ba1”, just below investment grade. The agency said the “Ba1” rating reflected an institutional environment that was supportive of structural reforms, as illustrated by the government’s industrialisation and renewable energy strategy.

Meanwhile, Fitch reaffirmed its stable outlook for the economy in October 2017, along with its investment-grade rating of “BBB”. The agency cited Morocco’s macroeconomic stability, record of prudent economic policies and a budgetary deficit below the category median as supporting factors for its rating.

TRADING TIES: At the start of 2017 Morocco took steps to build its regional ties, rejoining the African Union after a 33-year absence. Soon after, in February, Morocco formally announced its intention to join the Economic Community of West African States (ECOWAS) as a full member. In October 2017 ECOWAS and Morocco signed a framework cooperation agreement to establish a joint commission to discuss areas of common interest, including how to move forward with negotiations to draft the terms of the kingdom’s potential membership to the bloc. However, negotiations are expected to run well into 2018 and beyond.

Morocco’s business community has welcomed these moves, as they have the potential to enable greater access to regional markets. According to the latest OBG Business Barometer: Morocco CEO Survey, released in late 2017, many local and international firms operating in the country are considering expanding operations in the region. Some 80% of respondents said it was likely or very likely they would use their expertise in Morocco as a platform to expand into other regional markets. More broadly, 86% of respondents had positive or very positive expectations for local business conditions.