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Morocco Country Risk Report Q2 2015

Morocco Country Risk Report Q2 2015

Core Views

Despite not possessing hydrocarbon wealth, the economy will remaina relative outperformer in North Africa over the medium term. Investorinterest in the country as an export-oriented manufacturing hub forthe European market, coupled with a burgeoning tourism industry,should bode well for Morocco's underlying growth momentum in thenext few years.

Morocco will be one of the best economic performers in the MENAregion in 2015, partly by reaping the rewards of lower oil prices. Wehave raised our real GDP growth forecast for this year to 4.5%, from4.0% previously.

The Moroccan economy is one of the best placed in the MENAregion to benefit from the oil price slump, and we forecast the currentaccount deficit to narrow to just 1.9% of GDP over 2015 – asizeable improvement from 5.5% in 2014. These savings will easethe liquidity strains that have persisted since 2012, leading to animprovement in Moroccan banks' operating environment.

Morocco continues to benefit from the global trend of tumbling bondyields, as well as its stronger investor profile compared to otherNorth African countries. That said, we retain our view that most ofthe gains are now behind us, with upside pressure on Morocco'sEurobond yields set to increase over 2015.

We believe that Morocco is ready to transition towards a moreflexible exchange rate policy by 2017, a move that would lead to adepreciation of the dirham against both the euro and the dollar overthe remainder of our forecast period. Moving away from the currentbasket peg system would help to improve export competitivenessnd reduce the country's high labour costs.


Executive Summary
Core Views
Key Risks To Outlook
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Index
Foreign Policy
French - Moroccan Relations: Too Big To Fail
We expect a revitalisation of bilateral ties between France and Morocco over the coming months, ending a diplomatic row evident since
February 2014. While Morocco will continue to diversify its commercial and foreign policy relationships over the coming decade, the role
of the country's traditional partners will remain crucial.
table: POLITICAL OVERVIEW
Long-Term Political Outlook
Challenges For The Coming Decade: Scenarios For Change
The ongoing political and economic reforms undertaken by the government in recent years underpin our view that Morocco possesses
one of the most stable political climates in the region. However, we highlight that the uprisings that erupted throughout the Middle East
and North Africa at the start of 2011 indicate rising potential for further democratisation (voluntary or forced) of the authoritarian regimes
in the region, Morocco included.
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Activity
Factors Aligned For Strong 2015 Performance
Morocco will be one of the best economic performers of the MENA region this year, partly by reaping the rewards of lower oil prices. We
have raised our 2015 real GDP growth forecast to 4.5%, from 4.0% previously.
table: Economic Activity
table: BMI Crude Oil Price Forecasts
tab le: Various Count ries - Rea l GDP Growth , %
Balance Of Payment
Current Account Improvements To Ease Liquidity Strains
The Moroccan economy is one of the best placed in the MENA region to benefit from the oil price slump, and we forecast the current
account deficit to narrow to just 1.9% of GDP over 2015 - a sizeable improvement from 5.5% in 2014.
Economic Activity II
High Unemployment Set To Continue
The rate of job creation in Morocco will pick up over the coming years, as economic activity accelerates and more high-skilled jobs are
created by the developing industrial sector. Nevertheless, we forecast the unemployment rate to decline only gradually, to 8.7% by 2016
from 9.6% in the third quarter of 2014.
Monetary Policy
Rate Cut To Strengthen Economic Recovery
Morocco's Central Bank (BAM) cut its benchmark interest rate by 25 basis points to 2.50% in December 2014, in a move anticipated by
BMI. In the absence of any indicative statements from BAM,
table: Monetary Policy
Financial Markets
Market Downgrade Will Have Limited Impact
Morocco's downgrade from emerging to frontier market status by S&P Dow Jones Indices, scheduled to take effect in September 2015,
is unlikely to spark significant outflows from the country.
table: Current Account
Economic Activity III
SNI's Investments Provide Microcosm Of Moroccan Economy
The decision by Morocco's royal investment fund SNI to reduce its stake in the country's largest lender reflects its new strategy,
characterised by a focus on minority interests in sectors with high growth potential. In turn, the sectors chosen by SNI - tourism,
renewables, telecoms, real estate and finance - provide an indication of the direction of the Moroccan economy.
Chapter 3: 10-Year Forecast
The Moroccan Economy To 2024
Private Demand-Driven Growth To Continue
We point to continued efforts to reform the economy and improve education, alongside investment in tourism and energy infrastructure,
as major positives underpinning Morocco's long-term growth trajectory. We are pencilling in average real GDP growth of 4.0% per
annum over the next decade, with GDP per capi ta increasing to approximately USD4,3 00 over the same period. Nevertheless, we
caution that several i ssues, such as high unemployment combined with a growing youth population, if not addressed properly, could
pose serious threats to our positive long-term view.
table: Long-Term Macroeconomic Forecasts
Chapter 4: Operational Risk
SWOT Analysis
Operational Risk Index
Operational Risk
table: Operational Risk
Availability Of Labour
table: MENA - Availability Of Labour Risk
table: Top Ten Source Countries For Migrant Workers
Crime Risk
table: MENA Crime Risk
Chapter 5: BMI Global Assumptions
Global Outlook
Weaker EMs To Weigh On Growth
Table: Global Assumptions
Tab le: Deve loped States , Rea l GDP Growt H, %
Tab le: BMI VERSUS BLOO MBERG CONSENSUS REAL GDP GRO WTH FOR ECASTS, %
Tab le: Eme rging Markets , Rea l GDP Growth , %

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