The American financial agency Fitch Solutions has lowered its economic growth forecasts for Morocco from 3.4% to 1.8% for the year 2023. This revision follows the publication of GDP for the 4th quarter of the past year (Q4-22), which showed a slowdown in growth from 1.6% YoY in Q3-22 to 0.5% in Q4-22.
In detail of the latest forecasts on Morocco’s economic outlook, the American agency Fitch Solutions reports that overall growth in Q4-22 was hampered by a significant contraction in agricultural production of 15.1% year-on-year (GA ), while growth in the nonfarm sector slowed from 3.6% in Q3 22 to 2.4% yoy.
The financial agency estimates that the weakness of the non-agricultural sector is mainly due to a mixture of inflationary pressures and monetary tightening, weighing on both private consumption (0.8% yoy) and investment (-9 .6% in GA). ” While expansionary fiscal policy will offset some of these headwinds, it will fail to significantly stimulate economic activity.“, underlined Fitch.
Similarly, unfavorable weather conditions will limit the recovery of agricultural production after a 15% contraction in 2022 due to drought, which kept the contribution of net exports to GDP at a negative level (-1.2 percentage points ). Thus, the expert explains that even if his forecasts still imply an acceleration in growth of 1.1% in 2022, it will be significantly lower than the historical average of 3.6% over 10 years preceding the pandemic crisis.
” We expect this situation to lead to increased imports of agricultural and food products in 2023 and come on top of increased capital imports due to higher government investment spending.“, added the agency.
In addition, it forecasts that a sharp deceleration in growth in the euro zone, from 3.5% in 2022 to 0.4% in 2023, will weigh on Moroccan exports, given that more than two thirds of them are destined for the mainland. As a result, net exports will subtract 0.6 percentage point (pp) from growth in 2023, compared to a previous forecast of -0.2pp.
Accelerating inflation, weak growth in the agricultural sector and high unemployment will weigh heavily on private consumption. Indeed, Fitch Solutions had recently revised its average inflation forecast for 2023 upwards, from 5.0% to 7.8% in 2023, to reach its highest level in more than four decades, which will further affect the household purchasing power.
” We now expect private consumption to contribute just 0.8 percentage points to growth, down from a previous forecast of 1.7 pp, significantly below the pre-Covid-19 10-year average of 2.0. dp“, say the experts.
However, investment growth will turn positive thanks to the government’s expansionary fiscal policy, but will still face headwinds from higher interest rates. Fitch expects the government to increase capital spending by 16% in 2023, which should support economic activity. This will be in addition to the 300 billion dirhams (19.9% of GDP) of off-budget investments made by government-linked entities and the Mohammed VI fund for development.
That said, the financial agency predicts that rising interest rates in 2023 will continue to limit loan growth and weigh on investment. It recently revised its key interest rate forecast for the end of 2023 upwards, from 4% to 4.50%, following a significant increase in inflation.
” We believe that higher interest rates will partially offset the projected increase in government investment spending, prompting us to revise down our forecast for investment’s contribution to GDP in 2023, from 1. 3 to 1.0 percentage point. Still, this would be an improvement from -0.6pp in 2022“, concludes the international specialist.
It should be recalled that Fitch Solutions had revised, almost 2 months ago, upwards the growth prospects of the national economy in 2023 from 3.2% to 3.5% due to the slowdown in economic growth of the euro zone and the increase in demand for Moroccan exports, which mainly concern the automotive, textile and agri-food sectors.