Morocco set for lower growth as Europe slows

The IMF has revised down its forecasts for growth in Morocco this year and next, as its major export destination Europe records slower than expected growth.

Morocco’s 2015 growth forecast has been reduced from 4.9 per cent to 4.7 per cent, while its 2016 forecast has been cut to 3.0 per cent, down from the fund’s October forecast of 3.7 per cent growth next year.

That is because Europe’s economy is set to grow at a slower rate than previously expected, with economists around the world warning of a period of secular stagnation – where insufficient demand after the financial crisis leads to a decade of low growth.

The IMF expects Europe to grow at just 1.5 per cent this year and 1.6 per cent next year, barely keeping ahead of population growth.

But the longer-term prognosis for Morocco is brighter. The Moroccan government has made significant progress in closing the country’s twin fiscal and current account deficits, the IMF says, while it has attracted the interest of foreign manufacturing companies keen to take advantage of Morocco’s proximity to Europe and low labour costs.

Exports to Europe grew at an average annual rate of 7.2 per cent between 2010 and last year, according to EU data. That is considerably faster than Morocco’s economic growth, and suggests that European trade is becoming increasingly central to Morocco’s development.

“On the external front, Morocco has become increasingly integrated into European supply chains,” said Jason Tuvey, an emerging-markets economist at Capital Economics. “In the long run, it’s a positive for Morocco’s economy, which should be one of the best-performing economies in the Mena region over the coming years.”

Cheap labour costs and proximity to Europe mean that Morocco is well placed to become a manufacturing hub, Mr Tuvey said. Renault opened North Africa’s biggest car manufacturing plant in Tangiers, on the Moroccan coast, in 2012. Peugeot aims to complete a US$632 million car plant in Kenitra by 2019.

“The car sector is one area where Morocco is building itself up as a manufacturing hub,” said Mr Tuvey. “The aeronautical sector is showing signs of developing there. Other manufacturers from Europe are considering setting up their operations there.

Morocco nevertheless faces a host of long term policy challenges, according to Nicolas Blancher, the IMF’s mission chief to Morocco. “Continued efforts are needed to reduce social and regional disparities, increase female labour force participation and improve the quality of education and medical coverage.”

“Poverty rates, unemployment and inequality have declined over the past decade, but much remains to be done to promote a more inclusive growth,” Mr Blancher said.

The IMF has offered Morocco a $5 billion loan to help it plug its twin current and fiscal account deficits. But both deficits are dwindling as the government trims its budget. ​