Report: Morocco’s Economy Thriving Amid Global Headwinds

Doha – According to a recent report by El Economista, Morocco has emerged as a beacon of resilience, successfully reining in record-high inflation while maintaining strong economic growth, despite facing numerous challenges such as devastating droughts, a catastrophic earthquake, and a global economic slowdown.

The North African nation’s impressive performance has caught the attention of international organizations and analysts, who are now looking to Morocco as an example of effective economic management in the face of adversity, the report states.

El Economista’s assessment comes after the World Bank recently praised Morocco’s economy, stating that it has become “much more resilient.”

According to the Organisation for Economic Co-operation and Development (OECD), Morocco’s GDP grew by an impressive 3.5% in 2023, a significant improvement from the 1.1% growth recorded in 2022. This growth rate surpassed the OECD average of 1.6%, highlighting Morocco’s exceptional performance amid a global economic slowdown, El Economista reported.

The report attributed Morocco’s success to two key factors: robust domestic demand and a resilient export sector. Despite the pressures of inflation, droughts, and the aftermath of the earthquake, private consumption in Morocco grew from 2.2% to 3.1%. In particular, the El Economista report quoted the OECD as noting that this growth occurred “with inflation putting pressure on households and severe droughts negatively affecting their prospects.”

Read also: Report: Morocco Grapples to Sustain Economic Growth Amid Rising Inflation

The International Monetary Fund (IMF) echoed these sentiments following their visit to Morocco to negotiate a credit line. “Morocco has experienced genuine economic growth in 2023, bolstered by the recovery of domestic demand and thriving exports,” said Roberto Cardarelli, a member of the IMF team, according to El Economista. “We expect its GDP to continue growing, reaching 3.5%, supported by increased investment and lower inflation.”

Morocco’s triumph over inflation has been particularly remarkable, said the El Economista report.

The country’s inflation rate soared to 11% in February 2023, with core inflation (excluding energy and fresh food prices) reaching 8.5%. However, through a combination of targeted subsidies and monetary policy measures, Morocco managed to bring inflation under control in record time. Inflation had fallen to 2.3% by February 2024, with core inflation at 2.9% in line with the Moroccan central bank’s target.

Bank Al-Maghrib, Morocco’s central bank, played a crucial role in this success by maintaining interest rates at 3% since April 2023. “Morocco needed to see the dissipation of the commodity and energy shock,” El Economista quoted analysts from Caixabank as explaining. “This alone would not be sufficient. A more restrictive monetary policy would be necessary for inflation to fall below 3%.”

According to the El Economista report, the OECD believes that the most critical factor in the rapid decline of inflation has been a series of subsidies designed to cushion the impact of rising prices.

“With the dirham stabilized by interest rate hikes (and the liquidity buffer), subsidies have limited the pass-through of global prices to its economy,” the report quoted the organization as recently stressing. Meanwhile, Fitch has estimated that these subsidies and fiscal support programs cost around 2.2% of the country’s GDP each year.

Morocco’s success in taming inflation has also been aided by a program of export restrictions on key products, particularly energy and food items. For example, in October 2023, the country banned the export of olive oil. Despite these temporary limitations, El Economista highlighted in its report, Morocco’s external trade has become one of the pillars supporting its growth.

Exports not only avoided a decline but even marked a slight increase of 0.2%. This was primarily driven by the automotive sector, which saw a 27% surge in exports, with Stellantis and Renault plants operating at full capacity. Other sectors, such as chemicals and agriculture, also grew at a similar pace, according to El Economista.

“The variety and diversification of Morocco’s exports have been key,” explained analysts from Allianz. “Despite droughts limiting the strength of its agricultural industry, the export of this sector, phosphates, and manufactures (automotive components, conductors, and wires) has managed to reduce the external deficit.”

Morocco’s resilience was also evident in the tourism sector, which achieved a historic record in revenue despite last September’s earthquake in Marrakech-Safi. Tourism income soared by 11.7% to reach 9.5 billion euros, with the arrival of 14.5 million visitors, El Economista noted.

Challenges remain despite Morocco’s overall economic success story

However, Morocco’s success story is not without its challenges. Poor harvests due to droughts and climate issues have been one of the main contributors to a worsening employment situation, as agriculture is one of the country’s largest employers. Although the unemployment rate hit a low of 11.2% in the summer of 2023, it had climbed back to 13% by January 2024, according to the El Economista report.

“The shift towards services, increased crop volatility due to drought, and limited prospects in rural areas are increasing urbanization trends and labor-related demands,” the report quoted Allianz as noting. Credit Agricole also pointed out that Morocco “has one of the highest poverty rates in the region, with almost a fifth of the population living below the poverty line,” said El Economista. 

Moreover, the return of inflation largely depends on a fragile geopolitical balance, particularly with Algeria, which can disrupt energy supplies. “Morocco faces the risk of a resurgence in commodity prices, especially for imports such as liquefied natural gas (LNG),” Allianz noted. “Diplomatic disputes with neighboring Algeria have interrupted gas supplies, affecting power plants and posing challenges to security.”

Another potential threat to Morocco’s current success is the issue of wage demands. The country’s largest trade union, the Union Marocaine du Travail, is calling for a 60% increase in the minimum wage and a general 29% increase in the public sector. According to El Economista, this new front could raise spending at a critical time, as the deficit remains a problem for the North African nation.

Despite these challenges, Morocco has demonstrated remarkable resilience and the ability to overcome numerous obstacles. The country’s effective management of inflation, coupled with strong domestic demand and a thriving export sector, has positioned it as a standout performer in the global economic landscape.

As the world watches, it remains to be seen whether Morocco can continue to navigate the multiple challenges that lie ahead in 2024 and maintain its impressive economic trajectory.