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Rabat- According to BMI Research, Morocco’s current account deficit will continue to narrow in 2018 and 2019, owing to strong goods and services exports, although rising energy imports will temper the pace of improvement.
In its latest economic analysis report, BMI — a member of the Fitch Group that provides macroeconomic, industry, and financial market analysis — expects Morocco’s current account deficit to shrink to 3.1 percent of GDP and 2.8 percent in 2018 and 2019 respectively, down from 3.6 percent in 2017.
External Demand
BMI attributes the improvement of Morocco’s current account status to the rapid growth of goods and services exports, driven by a “robust” demand from France and Spain, the country’s key trading partners. Together, joint demand accounted for 44.4 percent of Moroccan exports in 2016. The firm stated in a previous report that Morocco’s strategic expansion into sub-Saharan Africa is predicted to play a key role in future export growth.
“About two-thirds of these exports are consumer goods, and given our expectations for private consumption to accelerate in both markets, this will result in goods export growth picking up. As such, we forecast exports to grow by 14.1 percent in 2018, up from 13.6 percent in 2017,” the report reads.
Regarding Tourism
In addition to the rapid growth of goods and services exports, the firm attributes the improvement of Morocco’s current account status to tourism industry performance. For BMI, tourism will witness a similar growth pace over 2018 and 2019.
“Similarly to goods exports, Morocco’s tourism sector relies on European visitors, with EU countries accounting for 69.4 percent of total arrivals, excluding Moroccan nationals, in 2016,” the report adds.
With Spain and France predicted as the largest contributors in this group at 40.8 percent of the total, BMI believes that the uptick in private consumption in these countries, as well as the broader Eurozone, will support a continued expansion of the sector in 2018, which will further contribute to the declining of current account deficit.
Rising Energy Costs
Despite this optimistic outlook, the Fitch group predicts that rising energy imports will at most have a tempering effect on Morocco’s account status over the coming quarters. According to the study, energy products made up 16 percent of total imports in 2017, driving an increase of 8.1 percent in overall imports.
BMI’s Oil & Gas team forecasts that Brent will trade at an average of USD 67 per barrel in 2018 and USD 75 per barrel in 2019, up from USD 54.8 per barrel in 2017. Therefore, goods import growth will accelerate to 10.1 percent in 2018, limiting the pace of current account improvements.
Previously, BMI asserted that the government’s plan to introduce renewable energy sources will effectively diminish the need for energy imports but cautioned this will take years to manifest itself.
Limited External Risks
BMI’s research indicates that the risks to external stability will remain low for the foreseeable future. They attribute this to Morocco’s continued strategy of nurturing foreign direct investment, which will stabilize the country’s external funding and limit pressure on its international reserves.
“Morocco’s drive to become a regional manufacturing hub, notably by attracting greater foreign investment, will result in large inflows of foreign direct investment, underpinning the stability of the country’s external funding,” the report concludes.
